China’s Tech Sector May Rival Property as Growth Driver, BE Says
(Bloomberg) -- China’s high-tech sector is driving an increasing amount of demand for goods and services in the world’s second-biggest economy, and its contribution could rival real estate by 2026, according to Bloomberg Economics.
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“The high tech sector has potential to become a much more significant source of growth,” economists Chang Shu and Eric Zhu wrote in a report. It’s estimated to drive demand worth nearly 19% of GDP by 2026, up from 14.3% last year, and almost on par with the property sector now.
Beijing is searching for new sources of growth as it steers a transition away from a property-driven model. Officials are pursuing “high quality development,” which will focus on high-tech manufacturing and innovative factors such as information technology, big data and artificial intelligence.
Bloomberg Economics’ analysis looked at sectors including medicine, advanced equipment, IT, communications equipment and services, as well as research and development. It estimates that the final demand related to high tech was 18 trillion yuan ($2.5 trillion) in 2023, or about 14.3% of GDP. That’s less than property, which drove demand worth 20.1% of GDP.
But with the property sector forecast to continue shrinking in the coming years, the fast growth of high tech industries and their increasing economic weight make them a promising growth engine, Bloomberg Economics said.
About a quarter of demand contribution from high-tech sectors comes from spillovers to other sectors, according to the report. A 1-yuan increase in the output value of high tech industries is associated with a rise of 1.3 yuan in final demand across the economy, it added.
Sustaining growth in hi-tech sectors won’t be easy. A major risk is rapid technology decoupling globally, with the US and its allies imposing various forms of restrictions on advanced technology exports to China.
Under-developed market mechanisms for nurturing innovation and entrepreneurship may also limit private-sector spending, and government-led investment could lead to inefficiencies and overcapacity, the economists said.
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