5G technology is increasingly customized and lightweight, enriching application scenarios and driving China’s industrial internet to expand coverage. Photo: TUCHONG

Since the beginning of 2024, the Chinese economy has continued its upward trajectory, establishing a solid foundation for achieving the year’s development objectives. Several structural highlights are noteworthy, with structural transformation playing a crucial role in supporting steady economic growth. Transformations and upgrades in industries, consumption, investment, and foreign trade not only reflect short-term economic recovery, but are also essential for fostering high-quality development in the medium and long term.

Manifestations of structural transformation

On the supply side, industrial structures continue to transform and upgrade, while the development of new growth drivers and new arenas accelerates. First, high-tech manufacturing has quickened industrial production holistically. In the first quarter of 2024, the value added of high-tech manufacturing grew 7.5% year-on-year. Driven by high-tech manufacturing, the value added of industrial enterprises above the designated size expanded 6.1% from a year earlier. In particular, output from key industries such as new energy vehicles, high-end ships, charging stations, 3D printing equipment, and electronic components was outstanding. New quality productive forces have gained traction at a faster pace, playing a notable role in turbocharging the industrial economy.

Second, the service sector has become more vigorous. China’s tourism market boomed during the Spring Festival and Qingming Festival holidays, with main indicators attaining and even surpassing the levels prior to 2020. The holiday economy is one of the metrics used to measure social development levels and maturity. In recent years, holiday tourism has become an increasingly crucial source of economic growth in China. Moreover, the thriving of modern logistics as well as emerging services supported by technologies like big data, cloud computing, and artificial intelligence, while creating economic added value, have reduced trade costs for other economic activities and enhanced the operational efficiency of the entire economy.

On the demand side, the consumer market continues to expand and improve, investments in high-tech industries show strong momentum, and the export structure has gradually improved. In the first quarter of 2024, total retail sales of consumer goods rose 4.7% year-on-year, and retail sales of services saw a year-on-year increase of 10.0%. Among rising consumption, development- and upgrade-oriented consumption grew more rapidly. Retail sales of sport and entertainment goods and communication equipment to businesses above the designated size increased 14.2% and 13.2%, respectively, from the previous year. Consumption continues to evolve in the direction of digitalization, intelligentization, and integration. Meanwhile, online retail sales of physical commodities grew 11.6% year-on-year, accounting for 23.3% of total retail sales of consumer goods.

In the first quarter of 2024, investments in manufacturing and infrastructure grew 9.9% and 6.5%, respectively, from a year earlier, which together filled the gap caused by declining real estate investments. Excluding real estate investments, the year-on-year growth of private investment reached 7.7%. Investments in high-tech manufacturing and services expanded 10.8% and 12.7%, respectively, year-on-year. Investments in manufacturing of aerospace vehicles and equipment, computers and office facilities, and e-commerce and information services maintained high-speed growth.

Regarding China’s export structure, the export scale continued to expand in the first quarter of 2024, with the structure of exports upgrading and export destinations diversifying. Take automobile export as an example. Chinese-made vehicles were not only welcomed in developing nations like India, Thailand, and the Philippines, but gradually seized a share of the market in the United Kingdom, France, Belgium, Australia, and other developed countries. Additionally, automobile models and categories have become richer, with a wide range of inexpensive, cost-effective low-end models as well as edgy, stylish medium- and high-end vehicles featuring advanced performance and quality.

Significance

The process of economic development is essentially a process in which economic structures, especially industrial structures, undergo continuous transformation and upgrade. Throughout history, the economic development of a country is usually non-linear, and new economic levels must be attained through structural transformation and upgrade.

In the mid-to-late 18th century, the United Kingdom first launched the Industrial Revolution, transforming and upgrading its industrial economy to become the first industrialized country in the world. From the mid-to-late 19th century to the early 20th century, the United States took the lead in the Second Industrial Revolution, completing electrification and innovating the organizational model of modern enterprises earlier. As such, production efficiency was considerably improved, and the US assumed global production leadership. The information technology revolution in the mid-to-late 20th century further entrenched the US’s advantage.

After the PRC was founded, particularly since reform and opening up, the Chinese economy’s leapfrog development has been inseparable from the transformation and upgrade of industrial structures. By contrast, Latin American economies, such as Brazil and Argentina, and many Sub-Saharan African countries with sluggish industrialization, have been mired in persistent stagnation due to failures in economic structural transformation.

Based on reality, China faces a grim external competitive environment where lesser-developed nations are trying to catch up and advanced economies are hoping to retain advantages through containment of other nations. China must break out of this predicament through economic structural transformation and upgrade. Recent data released by the World Bank shows that China ranked 71st among more than 200 countries and regions around the world in terms of per capita gross national income (GNI) in 2023.

Compared with developing countries like Vietnam, India, and Mexico, China’s labor cost advantage, which reliably sustained economic growth for many years, has evidently weakened. Only when labor productivity outgrows wage hikes can the external transfer of medium- and low-end manufacturing industries, such as textiles, clothing, furniture, and electronic product assembly, slow down.

However, there is still a wide gap between China and high-income countries that led the per capita GNI list. In recent years, the United States has intensified its technological blockade, attempting to crack down on China’s high-tech sector and confine its industrial structures to the medium and low end of global value chains. Under such circumstances, only accelerated transformation and upgrade of industries, consumption, investment, and exports can empower the Chinese economy to overcome severe challenges from the external environment, thereby promoting the effective improvement of quality and reasonable growth of quantity.

China’s multiple strengths

Structural transformation has continued to support China’s economic recovery and led to qualitative changes after a period of quantitative accumulation, bringing the Chinese economy to higher levels.

First, a sound industrial support system has provided solid, effective basic underpinnings for structural transformation and upgrade of the Chinese economy. This system is conducive not only to refining the professional division of labor, improving production efficiency, and lowering production costs, but also to strengthening the synergy of industrial and supply chains, and expediting the translation of scientific innovation outcomes from labs to real-world applications. This is particularly remarkable in the new energy vehicle sector. It is exactly because China has developed a complete industrial support system—which covers the car body, chassis, engine, and smaller parts and components—through the production of traditional vehicles, that its new energy vehicle industry was able to quickly expand and take the global lead in a few short years, “overtaking via a different lane” in the global automobile industry. Currently, China is not only the largest producer and consumer of new energy vehicles in the world, but in 2023, it overtook Japan as the world’s largest exporter of automobiles.

Second, sci-tech innovation is the fundamental driver of economic structural transformation and upgrade. In recent years, China has continuously increased investments in research and development (R&D), maintaining high-speed growth in R&D expenditures. Based on the industrialized application of sci-tech innovation outcomes, the country has made key breakthroughs in fields such as 5G communications, chips, and civil aerospace. 5G technology is becoming increasingly customized and lightweight, enriching application scenarios and driving the industrial internet to expand coverage. In the hot arena of chip R&D and manufacturing, the substantial performance improvement of Huawei’s Kirin 9000S processor has boosted China’s confidence in tackling external technological containment. With the accelerated commercialization of the Chinese-manufactured large passenger aircraft C919, and the maturation of domestic cruise ship manufacturing technology, the civil aerospace market is bourgeoning. These major breakthroughs in independent innovation have injected new impetus into China’s economic structural transformation and upgrade.

Third, economic development not only relies on technological innovation, but demand pull is also critical. Science and technology are productive forces, so is effective market demand. The larger the scale of economies in a given field, the more crucial demand pull becomes. China has a population of more than 1.4 billion, and the per capita GDP has exceeded $12,000. The resultant demand advantage of the super-large market has lent a big boost to the application of sci-tech innovation outcomes to the real world, contributing to the rapid development of electronic product manufacturing, the digital economy, clean energy, and new energy vehicles to varying degrees. By extension, the global economy is an even larger market with more than 8 billion people, calling for involvement in the international economic circulation, deep integration into global industrial and supply chains, and participation in labor division and cooperation in the global market. Only by coordinating the domestic and international markets, and resources, can China gain an upper hand amid profound changes unseen in a century across the world.

Fourth, enterprises are the most vibrant entities in the modern economy. The iteration of business organization models is a key force advancing economic structural transformation and upgrade. Many studies have proven that Chinese enterprises are more agile, flexible, and resilient in capturing user demand, adapting to market changes, and responding to external impacts. The iteration of business organization models in China obviously outpaces the process in the United States, Japan, and European countries. This is not only due to China’s strengths, such as a solid industrial foundation and comprehensive support systems, but also reflects the diligence, wisdom, and pioneering spirit of the Chinese people and entrepreneurs. Currently, the edge in quickly iterating business organization models has been verified in internet platforms, logistics and distribution, new energy vehicles, and other areas. It will continue to invigorate China’s economic structural transformation and upgrade in the future.

Feng Ming is a research fellow from the Institute of Quantitative and Technological Economics at the Chinese Academy of Social Sciences.