Experts Chang Shu and Eric Zhu suggest that in China, the local advanced technologies sector will become a platform for stimulating the growth of demand for goods and services, and by 2026 it may compete with the sphere of real estate in terms of the scale of impact on the state of the country’s economic system.

The mentioned analysts in their report note that the high-tech area has the potential to strengthen and scale its status as a source of economic growth. In their opinion, by 2026, the specified sphere of activity can contribute to an increase in demand in China worth nearly 19% of GDP. Last year, the corresponding figure was about 14.3%. It is worth noting that in terms of the impact on the economic system of the Asian country, the high-tech area has significantly closer its position with the real estate sector.

Beijing is currently looking for new sources of growth. In this case, it means the catalysts of economic development. China is gradually making the transition away from a property-based model. Local officials declare a commitment to high-quality development, which is a process focused on production using advanced technologies. Also in this context, information technology, artificial intelligence, and big data are a kind of platform for positive momentum.

According to economists, in China last year, the final demand related to high technology amounted to 18 trillion yuan ($2.5 trillion). This figure is equivalent to about 14.3% of GDP. The same indicator of the real estate sector in 2023 amounted to 20.1% of GDP. But with a high degree of probability, this ratio will change in the foreseeable future. Currently, the real estate sector is in a state of deep and protracted crisis. According to forecasts, the negative situation will worsen in the coming years. At the same time, the area of advanced technologies has a growth potential, the prospects for the materialization of which correspond to the notion of a realistic scenario. This sphere of activity is likely to be the driving force behind the positive dynamic of the world’s second-largest economy.

About 25% of the demand from the high-tech area is related to spillovers to other sectors. The increase in the output value in the mentioned sphere of activity by 1 yuan is due to a rise in final demand across the economy by 1.3 yuan.

Chang Shu and Eric Zhu say that it will be difficult for Beijing to back a positive dynamic in the high-tech area. In this case, the main risk is the geopolitical situation, in which relations between China and the United States are deteriorating. The gradual degradation of the interaction system already has consequences. In this case, it means restricting the access of Chinese companies to advanced chips. Appropriate measures have been introduced by Washington. Moreover, some allies of the United States have joined the mentioned restrictions.

Chang Shu and Eric Zhu, in the context of discussing the risks for the Chinese high-tech area, also noted that insufficiently developed market mechanisms for nurturing innovation and entrepreneurship can limit private sector spending. Separately, they stated that the practice of public investment can provoke inefficiency and cause an excess of production capacity.

As we have reported earlier, China’s Property Market Shows No Sign of Rebound.