In recent years, China has undertaken a significant shift in its economic priorities, moving away from policies that emphasize GDP growth at all costs. This transition began under the leadership of Xi Jinping around 2017 and became more pronounced following a series of interventions in 2021. The primary aim is to address the inefficiencies that arose from the previous growth model, which had been overly reliant on real estate and infrastructure to drive economic expansion. While this earlier model sustained high growth after the 2008 global financial crisis, it also led to surging debt levels and declining returns on investment.
Reallocation of Capital: From Real Estate to Manufacturing
One of the most noticeable outcomes of China’s economic restructuring has been a marked reallocation of capital from real estate to manufacturing and technology sectors. Before the shift, residential real estate investment comprised more than one-third of total capital spending. By 2022, this share had fallen to 23%, and it is expected to decrease further to around 15% by 2024—the lowest in over 30 years. This substantial decline reflects a deliberate policy by the government to channel resources into the “real economy” sectors, such as manufacturing, which are viewed as offering higher productivity and better returns.
The data reflect this shift vividly. The pace of fixed-asset investment in the real estate and construction sectors plummeted by RMB4 trillion between 2021 and 2023, dropping from RMB14 trillion to RMB10 trillion annually. Simultaneously, investment in manufacturing surged, increasing by RMB3 trillion, from RMB11 trillion to over RMB14 trillion. This redistribution of capital is designed to reduce the excessive focus on real estate, which had dominated investment patterns for years.
Impact of Reallocation on Economic Indicators
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