China is building a whole new economic engine, and it's a lot shinier than the last one. The prolonged slump of China's property market is dragging down consumer confidence and weighing on an economy already suffering from the effects of low productivity in heavy industry and cheap manufacturing. So Beijing needs a replacement, and it's focused on creating a high-tech, clean, lucrative, and sustainable one. You're looking at creating new energy, like solar panels, or batteries, or building semiconductors, biopharmaceuticals. You're looking at A.I.. All industries the world's major economies want a piece of and will compete for control of. It's crucially important for China's ability, potentially, to overtake the United States as the world's biggest economy and most potent geopolitical force. And Beijing's plan is starting to pay off. Over the past four decades, China transformed from one of the poorest countries in the world to its second-biggest economy. A lot of that was driven by property and infrastructure.

Urbanization drove expansion of property and infrastructure building, which was very powerful in sending China's demand and growth much higher over the past many years. So was the country's role as the world's manufacturer of choice for cheap, mass-produced goods and materials. But this familiar branding? It became something of a punchline -- a derisive nod to China's exports being poor-quality versions of Western products. President Xi Jinping intends to change that -- for Made in China to become a badge of honor. And that will rely on cities like this. We're here at GCL Technologies' home base in Xuzhou, China, about halfway between Beijing and Shanghai. GCL is the world's second-leading producer of polysilicon -- the key material for solar panels. And it hit on a manufacturing breakthrough that helped it become the world's only commercial maker of this stuff -- granular silicon -- which uses significantly less electricity to produce compared with existing methods. It's cheaper and greener to make cutting-edge solar panels with -- exactly the kind of high-tech innovation President Xi Jinping wants.

Over the past decade, China has given consistent policy support and has helped back companies with cheap land, cheap credit, easy environmental permitting. It's seen its industry grow and grow and grow to the point where now it absolutely dominates global solar panel manufacturing. Solar panels are just one of the new three, as Xi Jinping's government dubbed its priority areas of growth. Electric vehicles are one of the others. And the country's booming EV industry is making it a global auto heavyweight. BYD, based in the southern Chinese tech hub of Shenzhen, is China's best-selling car brand, and it's on track to once again become the biggest seller of EVs globally. China is producing these products at much cheaper prices than its competitors, but also the quality. If you look at Chinese consumers, when they face both Tesla and domestic brands, which one they choose, the domestic brand is by no means inferior. And inside them, the final member of Xi's new three: lithium-ion batteries --

used to power EVs, but also products you can attach to a drone or a dog. Together, the new three have driven the rapid growth in the value of China's exports, underpinned by that all-important policy support. When Xi Jinping and his team identify a new priority, they can point banks at providing the finance and businesses at acquiring the technology to try and get them to where they want to go. This has not gone unnoticed. Obviously, we're facing a very different geopolitical environment with all the tariffs talks being ramped up. We're starting to hear the actual figures that Europe is planning on doing when it comes to tariffs and EVs from China. 25% tariff on Chinese steel and aluminum products, and we'll counter China's overcapacity in these industries. Protectionist salvos from the US and Europe may slow China's tech ascent, but they're also fueling Xi's push for self-sufficiency. And that's not just about economics. Key technologies aren't just good for growth.

They also have direct national security implications. The bigger the Chinese economy is, the more they're going to be able to pay for a capable military. You'll have heard of at least one company that knows this all too well. Huawei had to back out of the smartphone market because it didn't have access to the most advanced chips. So it developed its own instead. And the tension escalated. The Biden administration, of course, has imposed these very strict export controls on what kinds of chips, what kinds of chip-making equipment can be sent to China. And so on. It meant that despite Huawei's chip breakthrough, China's semiconductor industry is still behind global leaders. Xi's big push is facing domestic challenges, though, too. That declining property market we saw earlier has a ripple effect, hitting companies that produce steel and cement, as well as ordinary people. Chinese investors don't have a ton of ways to put their money away for the future. One of the most successful in recent decades has been buying a house and seeing that value get

better and better over time. And so the crash in the housing market, it's reduced consumer confidence. You can see that clearly on this chart. Over the past five years, while China's factories ramped up production, consumers tightened their belts. China can't continue on its development path by producing too much, consuming too little, and expecting the US consumer to pick up the slack. For Xi Jinping and his aspiration to drive China's new productive forces, that could be a significant problem. Back here at GCL, the solar technology company in Xuzhou, innovation is helping its parent city transition toward high tech sectors, away from a long-standing reliance on mining and heavy industry. But take a look at this analysis from Bloomberg Economics of industrial contributions to China's gross domestic product. The data show the same transition is expected to take place across the country, with property's contribution to GDP continuing to decline, but technology sectors rising to fill the gap. What the push for this economic transformation here in China means

is that no longer is China's future going to be dependent on taking something the rest of the world made and producing it cheaper and quicker, and reselling it to everybody else. What you're seeing now in solar panels, companies like GCL, in electric vehicles and batteries, is that Chinese companies are at the forefront of bringing new products to market. It's a blueprint South Korea knows well. It pivoted from a reliance on heavy industry to technology and became one of the world's biggest exporters, fostering popular household names in the process. While Japan and Korea could export their way to high income, it's just much harder for China to do that because there's just not enough global demand to absorb all of the Chinese exports. Beijing also isn't an ally of Washington, unlike Seoul. Still, Chinese leaders have set an ambitious goal of boosting per-capita GDP from the current level and maintaining a growth rate for the economy of about 5% a year. I think if China gets it right

from a growth point of view, China can maintain a solid pace of growth for many years to come. And because of China's sheer size, its contribution to global growth will be important on the global stage.

How China Is Rewiring Its Faltering Economy

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