February 28, 2017

China's New economy is about 30% of the overall economy

China has entered a “new normal” stage, where the returns to capital are continuing to decrease and low-skilled labor intensive industries are growing at a much slower speed. Whether the country can enjoy sustainable growth critically depends on the growth of the new economy sector. However, there is little information about the structure and growth trend of this sector. This article constructs for the first time the New Economy Index to provide a framework for measuring the new economy sector in China. The article defines the scope of the sector and uses a big data approach to identify the new economy sector and enterprises belonging to it. The New Economy Index is used to describe the growth pattern of the new economy sector. The findings show that the sector accounts for about 30 percent of the whole economy, and the New Economy Index is negatively correlated to several traditional economic indices, such as the Purchasing Manager Index of the manufacturing industry.

An industry as belonging to the new economy sector if it satisfies the following standards.

1. an industry is considered to be in the new economy sector if it is human capital intensive, technology intensive, and has a ratio of fixed capital that is relatively low. We use the Industry Input-Output Table for 2010 and the Sixth Economics Census data to identify industries satisfying these standards. We consider an industry to be human capital intensive if the sum of labor income and operating surplus is more than 70 percent of value added, the average level of education is more than 12 years, and the share of research and development (R&D) is among the top 10 percent in the industry.

2. new economy industries are those that are in accordance with the country’s industrial policies. In recent years, China has issued a series of documents to provide guidance for industrial development, including Guidance for Accelerating the Development of High-Tech Service Industries, issued by the State Council in 2011; Decision to Accelerate the Cultivation and Development of Strategic Emerging Industries, released in 2012; and Made in China 2025, released in 2015.

Based on these standards, researchers identified nine industries with 111 sub-industries in the scope of the new economy. These are
energy conservation and environmental protection,
new energy,
new energy vehicles,
new materials,
new information technology and information services,
high-tech services and R and D, biological medicine,
financial and legal services, and
high-tech equipment manufacturing.

The labor sub-index shows that new economy industries recruit labor with higher education, and the sector’s demand for high-quality labor is probably increasing.

SOURCES - China Economic Journal - Measurement of the new economy in China: big data approach

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