China doubles down on manufacturing, leaving real estate behind

One of those reports, from the Ministry of Finance, said the central government would allocate 10.4 billion yuan ($1.45 billion) “to rebuild industrial foundations and promote high-quality development of the manufacturing sector.”

While that’s down from the 13.3 billion yuan earmarked for the same category last year, the sector overall gained greater prominence. In 2023, plans to spend on industrial development came second to support for consumption.

“Unlike other economies that went through a wrenching adjustment in their housing market, China’s investment rate isn’t falling,” HSBC’s chief Asia economist Frederic Neumann and a team said in a report Friday. “Instead, [capital expenditure] is shifting towards infrastructure and, importantly, manufacturing.”

They noted how the shift “cushions the impact of a deflating property market on growth,” but also bears the same risk as over-investment in property.

“Unless demand keeps pace with investment, and does sustainably so, a harsh adjustment ultimately beckons,” HSBC economists said.

Chinese authorities in 2020 intensified a crackdown on real estate developers’ high reliance on debt for growth. Property sales have since plunged while developers have run out of money to finish many projects, cutting into what was once about 25% of China’s GDP when including related sectors such as construction.

UBS analysts late last year estimated property now accounts for about 22% of the economy.

Despite widespread attention on whether Beijing would bail out the property sector, real estate got no mention in the finance ministry’s spending plans, and limited attention in a ministry-level press conference about the economy during the parliamentary meetings. Instead, the housing minister was included in the lineup for a press conference about people’s livelihoods.

“Supporting the modernization of the industrial system” came first in the finance ministry’s report, followed by “supporting the implementation of the strategy of invigorating China through science and education.”

Within that second priority, the finance ministry said it would allocate 31.3 billion yuan for improving vocational education. Amid high youth unemployment, especially for university graduates, electric car company BYD and battery maker CATL are among those working with vocational schools to train staff for their expanding workforce.

Support for consumption came third in the finance ministry’s priority list this year, with no monetary value listed.

The report from the National Development and Reform Commission, the top economic planner, reiterated government plans to support some developers’ financing needs — under the eighth item on the priority list that called for preventing financial risks. The government work report presented by Premier Li Qiang gave real estate a similar level of prominence.

Tech and industrial development by contrast received more attention, especially given the new political catchphrase “new productive forces” and strong emphasis on China’s leadership in electric cars.

China faces growing pressure from the U.S., which in the last two years has cut Chinese businesses off from the high-end semiconductors necessary for most advanced artificial intelligence training. While Chinese companies are working hard on developing their own high-end chips, analysts generally predict it will take at least a few years for China to catch up.

Pressure on tech comes as the world’s second-largest economy has slowed its pace of growth after double-digit increases in decades past. Beijing this week set a national growth target of around 5% for the year ahead, a goal many analysts called “ambitious” for the level of announced government stimulus.

An increasing number of senior Chinese officials also come from an engineering background, particularly in aerospace.

One of those leaders with a rocket science background is Yuan Jiajun, who in October 2022 joined the Communist Party of China’s Politburo, the second-highest level of power. Yuan oversaw Chinese space missions in the early 2000s, including the first Chinese manned spaceflight mission called Shenzhou 5.

Late last year, Yuan also became party secretary of Chongqing, one of the biggest cities in China that often serves as a stepping stone to more senior roles. The municipality reports directly to the central government, as do Beijing, Shanghai and Tianjin.

Yuan told reporters Tuesday that in order for Chongqing to reach its goal of boosting economic growth by 1 trillion yuan in four years, the city must focus on bolstering manufacturing, followed by innovation in areas including artificial intelligence and high-end materials.

He described…