The recent conclusion of China’s “Two Sessions,” the annual meeting of the National People’s Congress and the Chinese People’s Political Consultative Conference in Beijing, highlighted the country’s economic policy focus on technological development. Amidst tumultuous times marked by a property sector crisis, escalating tensions with the US, mounting local government debt, the lowest rate of foreign direct investments, and high levels of youth unemployment, public frustration, and diminished investor confidence loom large. Concerns about the private economy were particularly vital in the backdrop of a recent clampdown on China’s tech sector.
Generally speaking, the economic policy postures and priorities are highlighted through the President’s keynote speech and the Premier’s press conference. However, this year, not only Xi’s keynote speech was missing, Premier Li Qiang’s media address was also scrapped. Analysts point out the Party’s failure to deal with domestic economic challenges as a key reason behind it, signaling Xi’s tighter control over the Party.
Not much like the previous year, when Xi outlined China’s evolving approach toward governing the private sector, China’s elite leaders including Premier Li Qiang’s and Foreign Minister Wang Yi’s highlighted the role of external challenges in exacerbating China’s economic woes. In his address during a panel discussion, it was three times that Xi redirected his focus on technology development goals. Xi’s focus on technology development goals were reverberated three times. The Party leaders underscored the significance of the challenging circumstances confronting China within a geopolitically charged environment, particularly referencing the US-led initiatives aimed at technological decoupling from China. Of notable importance is the limelight on the term, “new quality productive forces,” coined by Xi Jinping last year, wherein the essence of the term was found central to Marxist political theory. Xi also highlighted the need to integrate China’s technological innovation with its military capabilities, which he termed as “new quality combat capabilities”.
The recent emphasis on this term underscores the growing significance of advanced skilled labor, crucial for sustaining China’s competitive edge in the global pursuit of critical technologies. The term signifies a workforce essential for China’s modernization efforts during challenging times and contributes to innovation in sectors targeted by Western sanctions. It specifically highlights the skilled workforce within high-tech sectors such as advanced manufacturing, artificial intelligence, and the electronic vehicle industry. Therefore, this session notably emphasizes the private sector’s pivotal role as a cornerstone of the “new quality productive forces.”
A prevailing consensus within Chinese academia also suggests that China’s focus on building “new quality productive forces” is a response to hostile American policies targeting China’s vulnerabilities in global supply chains.
In his address, Premier Li emphasized the imperative of enhancing “self-reliance and strength in science and technology,” highlighting the necessity to upgrade industrial supply chains and fortify China’s position as a high-tech innovator. He announced a remarkable increase in China’s annual budget for Science and Technology, reaching an unprecedented figure of 370.8 billion Yuan. Additionally, it was reported that China intends to initiate new industrial projects in sectors such as new electronic vehicles, healthcare, and the medical industry this year.
The “Two Sessions” provided a direction to an intended course for the Chinese economy, that clearly spells high-tech development as a priority sector, however, the session failed to amuse the ailing private sector community. The session neither provided a clear path of economic recovery nor proposed reforms to muster investors’ confidence. More than promises and reassurance, the private sector needed deafening initiatives, internal reforms, and capitalization schemes. Instead of rhetoric, the Chinese leaders needed to acknowledge the structural challenges and introduce comprehensive reforms to support the health of the Chinese economy as the first priority. Moreover, the emphasis on the phrases “high-quality development” and “new quality productive forces” underscored China’s approach to private sector growth, focusing on long-term strategies rather than immediate incentives.
This suggests two significant implications: firstly, the party aims to steer the growth of the private sector towards industries directly affected by US export control measures, such as semiconductor equipment manufacturing. Secondly, this aligns with the central concept of “high-quality development,” ultimately serving the long-term strategic objectives of the party. Also, the major discussions at the session indicate that there is an overarching consensus among the Chinese top leadership that significant breakthroughs in the high-technology sector are the most vital link in their long-term economy and military competition with the US.
The sense of urgency toward withstanding the external challenges and catching up with the US indicates an increasingly lenient approach towards high-tech firms, especially those that are considered pivotal in reducing the reliance on the US, like AI, semiconductors, big data, etc. It also means that China prioritizes greater support for companies that embrace innovation and diversification, in line with the Party’s strategic objectives. Thus, it is the Party that determines the allocation of resources and areas of innovation and not the private enterprises. Therefore, observers should not be surprised if Chinese regulators initiate another crackdown on private tech enterprises tomorrow, targeting those that diverge from state objectives or fall outside China’s priority areas, particularly the high-tech sector. However, Can the Chinese state succeed with its high-tech development, without gaining confidence from China’s internet giants, whose growth is market-driven, and which also have been subjected to hefty regulatory fines, restructuring, and crackdowns?
