BEIJING — As China endeavors to pivot toward high-tech industries, the country faces challenges in compensating for a significant downturn in its property market, according to a report published by U.S.-based research firm Rhodium Group on Monday.
From 2023 to 2025, emerging industries such as artificial intelligence, robotics, and electric cars contributed a mere 0.8 percentage points to economic output. This growth is insufficient to offset a combined 6 percentage point decline seen in real estate and other traditional sectors, the report indicates by analyzing official Chinese data and sector-specific sources.
China's strategy seeks to enhance technological self-reliance, largely in response to U.S. trade restrictions. As per a five-year development plan, Beijing aims to double its focus on advanced technologies through increased state investment and supportive policies. However, Logan Wright, a partner at Rhodium and the report's co-author, expressed skepticism to CNBC about these plans' potential success: "China's growth strategy isn't going to work. They're not going to achieve their targeted rates of GDP growth based on the policies they have outlined so far."
Despite targeting an annual GDP growth of around 5%, Rhodium estimates that to maintain this pace, new industries would need to expand sevenfold within the next five years. This entails an additional investment of roughly 2.8 trillion yuan this year, equating to a 120% increase from 2025 figures. While some sectors like artificial intelligence and robotics might see future growth, others such as electric vehicles may have already peaked, potentially slowing output in the coming years, the report notes.
Property Market Challenges
China has emphasized high-tech development but has taken less action to counter a prolonged real estate downturn, which previously constituted more than a quarter of the economy. Data from the China Real Estate Information Corp revealed that new home sales by floor area last year plummeted to the lowest levels since 2009. Indications have only recently emerged suggesting policymakers may adopt more aggressive support for the property sector.
Kulled from a macro outlook by global investment firm KKR, property market troubles are estimated to reduce GDP growth by 1.2 percentage points this year. Even with a projected 2.6 percentage point boost from digital technologies, the overall growth estimate remains minimal at 4.6%. "Despite a potential 5% growth target for 2026, headwinds from real estate and a weak job market cast doubt on achievability," KKR's report suggested. Predicting that property market detriments might lessen by 2027, KKR anticipates little improvement in digital industries or consumer demand.
Broader Economic Consequences
An overreliance on tech may have wider economic ramifications. Although jobs in new industrial sectors might offer higher wages, they require fewer workers than traditional industries, as shown by Rhodium's analysis. With China's manufacturing share already at 30% globally and increasing automation, up to 100 million jobs could vanish over the next decade — exceeding most developed economies' total workforces, according to KKR.
China's urban unemployment hovered above 5% last year, with youth unemployment nearly three times as high. Given it’s unlikely that domestic investment, even in new industries, will create sufficient demand, "Beijing will become even more dependent upon gaining market share in export markets," the Rhodium report concludes.