China’s “New” Strategic Industries Will Not Produce 5% GDP Growth

China’s “new” high-technology industries will not generate investment sufficient to power 5% GDP growth in the years ahead. New input-output tables released by the National Bureau of Statistics reveal these industries remain too small relative to traditional sectors such as property and infrastructure investment. China’s past economic performance has clearly been overstated, and the economy will remain more dependent upon export growth than domestic investment in the future.

For China economics geeks like us, Christmas sometimes arrives in the form of a new dataset that allows us to take a different look at a persistently difficult question. So it was this year with the quiet November release of new NBS input-output tables for the year 2023. We had been waiting for these tables because they would provide the first official indicators of the upstream and downstream economic impacts of China’s new strategic industrial policy priorities—the “new quality productive forces” that Beijing hopes will deliver stronger productivity growth to China’s economy. Admittedly, the releases were still limited, as we received new data on the electric vehicle sector, batteries, and the power sector, but nothing new on artificial intelligence and robotics.

The critical macroeconomic question is whether the decline in the “old” drivers of China’s economy—property and infrastructure investment—is likely to be larger or smaller than the potential growth from the “new” industries—electric vehicles, artificial intelligence, robotics, batteries, and other high-technology sectors. The most recent full NBS input-output table before this release was from 2017 (two more limited releases were available in 2018 and 2020 as well), before there was significant data specific to these industries. So the release of the 2023 table—which measures the upstream inputs and downstream final demand and value-added produced within particular industries—is one of the first datasets concerning whether Beijing’s bet on new growth drivers is likely to pay off.

Based on this new dataset and secondary industry-specific sources that include Rhodium Group’s Global Clean Investment Monitor, the estimated decline in economic output from China’s older industries has been around six times larger than the impact of the pickup in new growth drivers over the past two years, from 2023 to 2025. Admittedly, there are considerable uncertainties around some of these industry-specific estimates of output, but these are unlikely to change the overall conclusion.

Output in the property sector, some components of infrastructure investment, and conventional internal combustion engine (ICE) vehicles declined as a proportion of GDP by around six percentage points, from 23% to 17%. The pickup in output from new energy vehicles (NEVs), lithium-ion batteries, solar technology, artificial intelligence, robotics, and new electric power construction was less than one percentage point of GDP, from 5.5% to 6.3%. The new growth drivers have a little more than one-third the impact of traditional industries, even with a much smaller property sector after four years of contraction.

Those results are summarized in Figure 1 below, with many more details about the calculations in individual industries in the appendix. For industries specified in the input-output tables themselves, we used the stated levels of final demand and value-added (GDP) straight from the tables. For others, we used secondary sources of output and financial data from industry associations and listed companies. For most industries, we did not include the value-added from related services sectors as these were not available, so our calculations remain narrow. The AI sector is a notable exception, as software output was included. Value-added from services related to the property sector was also included as this level is specified by the NBS, but most of the decline in property-related activity did not occur in the services component of the industry.

Falling prices also mitigate impact of new industries

The auto industry offers a useful example that explains how the downstream impacts of China’s new industries are simply smaller than those in traditional industries. Over the last five years, NEVs have rapidly replaced ICE vehicles, reaching around 55% of all new auto sales in China last year. The growth in the NEV sector has been significant, measured via our input-output calculations at around 895 billion yuan over the past two years. But the associated contraction in output from ICE vehicles has been a bit less than half of the expansion, at 357 billion yuan. Given lower average prices of NEVs, the total output associated with ICE vehicles was still estimated to be 232 billion yuan higher than that of NEVs in 2025.

The overall expansion of auto retail sales in China has been limited, averaging only 3.3% from 2021 to 2025, while prices have fallen, requiring aggressive subsidies to maintain sales (See August 2025, “China’s Subsidies Are Fueling ‘Involutionary’ Competition in the Auto Sector”). The domestic auto industry is already facing global pushback against continued exports from China, and overcapacity is reducing the prospect for new investment in the future. Even though investment growth in the industry was stronger than most other sectors in 2025, growth in new production capacity in volume terms was limited. New investment is likely focused on improving existing production lines and automated driving systems. Some of this investment may be resilient even if auto sales and output decline in the future. But in the short term, sales and output in 2026 will likely weaken relative to 2025 as subsidies wind down.

Declining product prices reduced measured output in the lithium-ion battery and solar sectors to a far greater extent than the NEV sector. The lithium-ion battery sector reported limited growth of 25% in total output value from 2023 to 2025 relative to its total output volume, which more than doubled. The solar sector’s total output value plunged by 38% from 2023 to 2025 despite growth in output volumes. Collapsing prices of oversupplied products also discouraged investment in the battery and solar sectors, which also halved.

Figure 2 below highlights the five largest contractions and the five largest expansions of intermediate goods demand for both traditional industries and China’s new growth drivers.

Auto parts are the largest source of growth of these intermediate components. But the contractions in demand resulting from slowing property construction and infrastructure investment in other intermediate goods are simply far, far larger. Interestingly, banking services are one of the largest drivers of declines in intermediate goods as well, reflecting the weakness in credit demand and the decline in overall lending activity.

This isn’t going to work

There are a few immediate implications of this analysis. The first is that China’s chosen economic development strategy will not produce Beijing’s targeted rates of economic growth for the next five years, or longer. Real GDP growth of 5%—Beijing’s targeted level in recent years and likely its goal for 2026—would require at least 2 percentage points of growth from new fixed capital formation (investment) every year, which is around what China has been officially reporting in recent years.

Electric vehicles have likely already reached their fastest rates of growth, and output in the industry may be slowing in the years ahead. Even if there is no contraction in property, infrastructure investment, ICE vehicles, or any other sector, the remaining “new” industrial sectors (excluding NEVs) would have to expand roughly sevenfold over the next five years to produce 2 percentage points of overall investment growth per year. For 2026 alone, this would require around 2.8 trillion yuan in new investment on top of last year’s levels, or around 120% more than the 2025 estimated level of 2.3 trillion yuan in total investment in these sectors (excluding the NEV sector). That may be possible in AI or robotics for a year or two given the low level of current investment in those sectors and the potential for faster productivity improvements in other industries, but it’s probably not going to be sustained across all of China’s new industrial sectors. Total output growth across all “new industries” (including NEVs) has only averaged 10% over the past two years. In addition, property and infrastructure investment collectively are certainly going to continue slowing, as credit growth decelerates and local government debt continues accumulating. ICE vehicle output will likely continue declining as well.

The new growth drivers will simply not produce enough output to drive 5% growth in the next five years. They are simply too small as a proportion of China’s economy.

The second implication is that China’s past economic performance has clearly been overstated, particularly since the decline of the property sector starting in 2022. We have made this case extensively (See December 2025, “China’s Economy: Rightsizing 2025, Looking Ahead to 2026”), but the new analysis highlights that no other source of investment has offset the decline in property and infrastructure in particular. If these “new quality productive forces” have not produced the required economic offset so far, it remains to be seen what other industries could have possibly filled in the gap over the past four years.

The third implication is that China will remain even more reliant upon exports in the future, leaving the economy vulnerable to new trade restrictions. China’s development strategy and economic growth targets remain dependent upon investment and exports, but there is no clear prospect for domestic investment to produce the necessary demand to reach targeted growth rates, even in newer industries. This means that Beijing will become even more dependent upon gaining market share in export markets, in both new and traditional industries. The likely impact will be additional exported deflationary pressures via goods prices from China. If reducing trade imbalances is a priority, Beijing’s trading partners will need to consider broader restrictions on China’s exports.

Fourth, China’s shift to “new” industries will keep employment and consumption under pressure. Based on recent national economic census data, employment in the construction and property sectors increased from 72 million to 87 million from 2018 to 2023, or from 9% of total employment to 12%. With these traditional sectors collapsing over the last three years, associated job and income losses should be significant. At the same time, labor demand from higher-wage new industrial sectors was much weaker. Median employment per firm among A-share listed chip and cement companies we surveyed was 830 and 20,174 people respectively, even though average salaries were three times higher within chip firms relative to cement producers. Nor is there likely to be a meaningful redistribution of wealth through China’s tax system, which depends heavily upon value-added taxes. The shift to newer industries is likely to be marked by lower levels of new employment and consumer spending.

The summary calculations of the associated economic impact of investment and output in new versus traditional industries are listed in Table 1 below, and the methodology is detailed in the appendix.