Sign in
Research link-chevron Created with Sketch.
link-chevron Created with Sketch. Products and Services link-chevron Created with Sketch.
link-chevron Created with Sketch. Products and Services
Economics link-chevron Created with Sketch.
FX Report
The Loop
Inside China
Insights & Strategy
Equities link-chevron Created with Sketch.
Equities Enablement Lab
Analysts
Analysts
Help and Support
Help and Support
Corporate and Investment Bank
Standard Bank Group
Inside China 02 July 2026

The New Productive Forces: a view from Beijing

Jeremy Stevens

  • NPF (New Productive Forces) is not industrial policy in the conventional sense. It is a structural pivot, an attempt to build a new growth engine while the property sector, traditional manufacturing and infrastructure, comprising the traditional old growth engine, are falling.
  • NPF is the third iteration of a learning process (from Made in China 2015, to Dual Circulation, and now NPF) that trades specificity for ambiguity to avoid foreign retaliation while retaining operational bite; its success will be determined by coordination mechanisms, not sector selection.
  • NPF is trying to solve four structural problems simultaneously: an exhausted growth model, a demographic trap that will shrink the workforce by 9 million per year, a middle-income challenge that requires doubling per-capita GDP by 2035, and a consumption gap where household consumption is barely 40% of GDP.
  • Starting from a disciplined narrow estimate of NPF that tallies roughly 14.5% of GDP, the hybrid measurement adds sectors where NPF content is large and unambiguous but hidden under traditional labels, such as technology upgrading in legacy manufacturing, digital infrastructure, and clean-energy enabling investments. This raises the estimate to roughly 20% of GDP. The range gap matters because it determines whether NPF is large enough to carry the economy, or still requires the old model as a crutch. More critically, at already one-fifth of the economy, its growth must soon contend with diminishing returns, coordination complexity, and the hard ceiling of absorption. Our next paper will examine how NPF has reshaped the economy in practice, and where the constraints are likely to tighten first.
  • Logically, NPF cannot generate enough high wage employment to absorb the graduate surplus. However, only time will tell if the expansion of high productivity, innovation-intensive sectors can generate gains that cascade through the economy, and create a cohort of higher paid, skilled jobs, whose rising incomes then feed back into domestic demand and services upgrading, creating a self-reinforcing virtuous cycle of productivity, income and consumption growth.
  • Already, NPF does deliver cheaper, better products to households, but household consumption remains stuck near 40% of GDP, not because households are not benefiting, but because the benefits arrive as lower prices rather than higher incomes, and the aggregate surplus dwarfs what Chinese household budgets can absorb at prevailing income levels.
  • Further, China leads in production volume but still lags in value capture. The highest margins in NPF sectors accrue to firms that control the ecosystem, software, standards and intellectual property. Chinese firms dominate the physical stack but remain tenants in the digital and intellectual stack, which is why surging output does not automatically translate into domestic income.
  • The export surplus is arithmetic, not strategy. NPF generates more output than domestic demand can absorb, and the surplus then finds markets abroad. Whether Beijing intends to export or not, the surplus is a byproduct of the productivity model itself.
 

Read PDF