China’s Split-Screen Economy

0:00Today on State of the World, China's split-screen economy.

0:08You're listening to State of the World from NPR. We bring you the day's most vital international stories, up close, where they're happening. I'm Greg Dixon. Right now, China is experiencing two economic realities that feel like a contradiction. The technology industry is booming. But many other economic indicators, including prospects for Chinese workers, are dim. NPR's Emily Feng takes a look at both sides of China's economic picture. The excitement was palpable at a recent tech conference in Beijing. Each entrepreneur or company rep eager to showcase their product.

0:51This research project, for example, uses artificial intelligence to repair old Tibetan art. You can also ask them. Another firm has created a chatbot that answers health-related questions from retirees. Our company is very new, but developing so fast laughs Qi Kei. She is promoting a smart robotics company. These companies are all buzzing about the political signals from Beijing. Last month, Chinese policymakers revealed their proposed economic plan for the next five years. It prioritizes technology independence and creating an advanced manufacturing base. But Denny McMahon, who heads China markets research at the advisory firm Trivium China, says take a step back.

1:38Because the economy, he says, is running on two tracks. So if you're sitting outside of China, China looks like it's going gangbusters. But inside of China? People aren't feeling that because it's not translating into corporate profits. It's not translating into job security. Chinese official statistics show nearly one in five Chinese between 16 and 24 years old cannot find work. There's been a slump in overall investment, flatlining growth in wages and deflationary prices. And McMahon points out local tax revenue has actually been falling despite growth in tech companies. And that's because despite the success of all these new industries, a whole lot of industries are suffering from overcapacity.

2:21and what the Chinese government's calling involution. Involution, a memefied slang term for unproductive activity. The government uses it to mean too many companies are competing with each other at home. There is this intense competition inside China where everybody's kind of killing each other and they repeat each other off the profits. This is Leila Kawaja. She's a research director focusing on tech at Gavicao, a global investment research company. She says China has proven it can now do true innovation. But that innovation comes at great cost. More companies than necessary go under. And for those working in the industries of the past?

2:58A lot of people, they're losing their jobs and also, you know, getting their salary cuts. So outside of China, she says, you only hear about the survivors of this competition. And everybody else, basically, you know, they die. Chinese tech execs like Dong Tengfei, who works on designing artificial intelligence programs which can make videos, says the good thing about this economic shift to innovative technology is it's forcing the Chinese economy to figure out what it really needs. During the pandemic, he says many industries stagnated, prompting people to reassess whether there was truly any demand for certain goods in industries, and they often realized there wasn't.

3:43Plus, Chinese policymakers know the country's current economic model, one that is reliant on cheap exports, snowballing real estate construction and debt, cannot sustain future growth. Trivium China's McMahon says China needs new industries to grow. That allows China to accumulate wealth and become rich even as the population shrinks in absolute size and the population ages. But far from being a sure bet, McMahon says China's surging support for its tech and manufacturing sector is a hugely ambitious risk. Yet he says it is a risk that Beijing must take. With Jasmine Ling in Beijing, I'm Emily Fang, NPR News.

4:29That's the State of the World from NPR. Thanks for listening.