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China’s Plan to Boost Growth: A New Slogan for Factory Building

From the top of the government, China is pushing hard for a plan to fix the country’s stagnant economy and repair the damage from a decade-long housing bubble.

The program has a new slogan, presented primarily by Xi Jinping, the country’s supreme leader, as “new, high-quality productive forces.”

But it has features familiar from China’s business playbook: The idea is to spur innovation and growth through massive investments in manufacturing, particularly in high-tech and clean energy, as well as heavy spending on research and development. And there are few concrete measures on how the government plans to convince Chinese households to reverse the ongoing spending decline.

Prime Minister Li Qiang, the country’s second-largest official, laid out the plan on Sunday in a speech to world leaders gathered in Beijing for the country’s annual China Development Forum. “We will accelerate the development of new, high-quality productive forces,” he said at the opening ceremony of the forum.

The China Development Forum, launched in 2000, aims to explain to business leaders the economic plan presented by the prime minister on March 5 each year.

In recent years, the forum has featured a long closed-door discussion with business leaders, during which the Prime Minister asked many questions. But the prime minister’s talk, usually held on the last day of the event, was canceled without explanation this year, prompting some business leaders to skip Monday and schedule their private jets to depart for Sunday evening.

The China Development Forum also included a fairly open discussion of economic policy by Chinese business leaders and ministers a day before the opening ceremony, but that too did not take place this year.

Evan Greenberg, chairman and CEO of Chubb Group, a major American insurer, co-hosted the opening of the conference on Sunday. Attendees included Tim Cook, the chief executive of Apple, who was in China last week to boost iPhone sales, and Mike Henry, the chief executive of BHP, the Australian mining giant.

In his speech, Mr. Li called for improved production as well as more services and consumption. He repeatedly urged Chinese households to replace old cars and household appliances, but did not say whether the government would provide money to help them do so.

Consumer spending in China was subdued as house prices fell by a fifth in the past two years, according to semi-official data. The number of residential transactions has also fallen sharply. Homeowners complain they have to cut prices by up to half if they want to find buyers.

Real estate accounts for 60 to 80 percent of household wealth, a much larger share than in most countries. The near collapse of the housing market has left many families feeling less wealthy and struggling to meet their mortgage payments.

Mr. Li only briefly mentioned real estate and a related problem, local government debt, during a risk discussion. Over the past four decades, he said, “risks and challenges have not defeated us.”

Mr. Li said the government would try to provide legal residency to the more than 250 million people from farming families who have moved permanently to cities but do not have residency rights. Cities offer far higher health, retirement and education benefits than rural areas.

But Mr. Li did not explain how city governments, already running out of money, could afford to provide these costly benefits.

The “new, high-quality productive forces” mantra is aimed in part at allaying concerns in China and abroad that U.S.-imposed restrictions on high-tech exports to China could slow the country’s growth. In briefings before the forum, officials emphasized that manufacturing accounts for a large share of the country’s economy – more than twice the share in the United States.

“You can see that it is steadily increasing in China and is much higher than in other countries,” Shi Dan, director general of economics at the Chinese Academy of Social Sciences, a government ministry, said at a briefing.

China’s trading partners fear that more production will likely lead to more Chinese exports. The European Union is preparing to impose tariffs on electric cars from China. The European Union Chamber of Commerce released a report last Wednesday warning that the policy could lead to deindustrialization in Europe as European companies may be unable to compete with state-backed Chinese companies.

Companies that relied on selling raw materials to China for housing and infrastructure construction have closely watched the increased emphasis on high-tech manufacturing.

Andrew Forrest, chief executive of Fortescue Metals Group, an Australian iron ore mining giant, said China would inevitably continue to invest heavily in infrastructure, including roads, rail lines and ports.

“Infrastructure, it won’t actually be a move away from that, just a focus on manufacturing,” he said in an interview.

Chinese officials have made numerous promises to stabilize the real estate market but have provided few details.

Li Xuesong, another director general of economics at the Chinese Academy of Social Sciences, said at a briefing that local governments could provide more housing for public sector workers. But he did not address how local governments, many of which are saddled with heavy debts, would pay for these apartments.

After the recent slump in public land sales to real estate developers, many local governments had to cut the salaries of their municipal workers and needed support from Beijing to meet interest payments. China’s finance ministry has launched a program to help some cities pay down debt if they cut costly but popular infrastructure-building programs.

Helping consumers afford to spend more is crucial, Wang Dan, chief China economist at Hang Seng Bank’s Shanghai office, said at an online conference hosted by the International Finance Forum, a subsidiary of China’s central bank , was organized. “A direct money transfer would still be the most effective way,” she said.

Currently, the focus in China is on strengthening the supply and quality of goods, rather than worrying about demand.

“The growth momentum of investment in new engines is good,” said Liu Sushe, deputy head of the National Development and Reform Commission.

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