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The New Real Economy: A New Engine of China’s Economic Growth

wang_guangyu
Chairman
China Soft Capital

Wang Guangyu

The market has it that the world is at risk of second Great Depression due to the coronavirus pandemic. However, according to Dr Wang Guangyu, Chairman of China Soft Capital, COVID-19 has less impact on the world economy at current stage but more profound influence on social and political structures, which may gradually lead to de-globalization and isolation in the medium to long term.

The coronavirus pandemic struck the world economy with the biggest shock in February since the Second World War and has created big performance disparities between the world’s economies. A labour market implosion was led by lockdowns and a slump in consumer spending. Word trade shuddered as factories shut down and countries closed their borders.

Dr Wang elaborates how the world has been going through a sluggish growth phase since the early 21st century caused by factors including an ageing population, few big breakthroughs in industrial technology and rising geopolitical tensions. Although economies around the world have been hit by the measures taken to stop the spread of the coronavirus, he thinks the pandemic is just a blasting fuse intensifying the downturn. The pandemic may leave the economies less globalized, more digitalized and less equal.

 

The “new real economy” restarts China’s economic growth

Dr Wang further points out that the world economy has entered into a new iteration period in which the old economy has been suppressed and the virtual economy has been thriving. And it is the time to develop what he calls the “new real economy” to bring new impetus to economic growth.

“New real economy” refers to the combination of the internet and traditional economies to jointly create an economic form adapted to the future through technological and model innovation. The concept was initially proposed by Dr Wang in 2017.

Over the past decade, a massive and world-leading internet industry has been emerging in China and more importantly internet technology has rapidly penetrated traditional industries, facilitating cost reduction, efficiency improvement and dramatically changing the landscape of traditional industries.

Dr Wang has been studying the new real economy field for years and published a book titled “New Real Economy” in 2018 to elaborate on this subject. In his book, he considers companies with five special characteristics as belonging to the new real economy sector. These companies produce high value-added products that meet clients’ demands, utilize new technology, hire new type of talent and cultivate new-generation entrepreneurs with a global vision. Moreover, these companies must be environmentally friendly.

He emphasizes that the driving force of economic growth in China is weakening, and the search for a new engine of growth is imminent. Without doubt, developing the real economy has become a consensus of the entire society, as it will push the restart button of economic growth in China.

Although economic structural problems exist in China, Dr Wang reckons that China’s economy will be stable in the foreseeable future with the government’s effective management. China's top leadership floated the new economic development pattern of "dual circulation" in May 2020. The market is abuzz with interpretations of how the model will work and its knock-on effects on the pandemic-rattled global economy.

The core of “dual circulation” encompasses domestic economic developments that aim to extract China’s growth potential through faster technological progress, boosting consumption, new urbanization, supply-chain enhancement, and so on. The “outer circulation” aspect defines the relationship China wants to build with the rest of the world.

Dr Wang says the concept of the dual circulation initiative is actually not new and is in accordance with the China’s stable development trend. China has continued with its opening up reform over the years and is now focusing more on the domestic market.

The “outer circulation” is currently under pressure caused by the rising geopolitical tension stimulated by the pandemic. The export-oriented economy is suffering, and labour resources in the sector may shift. In terms of the “inner circulation”, it is important to boost consumption, which has been inhibited by high taxation, strong state-owned enterprises and relatively low incomes, according to Dr Wang.

 

Empower the new real economy

The role of the new real economy is critical at this stage. Capital is a requisite for the development of the real economy and national strategic industries. The transition of the economic structure also requires the companies to adjust their business models to become more consumer-demand driven and digitalized.

Dr Wang says “China Soft Capital is focusing on the new real economy sector for its investment and is engaged to play a key role by leveraging the capital power”.

Founded in 2008 by Dr Wang, China Soft Capital is a private equity firm specializing in growth capital, emerging growth, mature stage, and mezzanine financing. It is dedicated to diving deep into the strategic emerging industries to grasp the investment trends and select a new generation of information technology-related industries, including high-end equipment manufacturing, energy conservation and environmental protection, culture, education and health. Its investment concentration has shifted to the new real economy sector in recent years, according to Dr Wang.

Having invested in 70 new entity enterprises, the investment firm is committed to growing into a technology and finance flagship and has been honoured as one of China’s top 10 private equity institutions. It has also received the Golden Bull Award for private equity institutions for many years.

Headquartered in Beijing, China Soft Capital operates branches in Shanghai, Jiangsu, Zhejiang, Hunan, Hubei, Guangdong, Hong Kong and the European Union.

Dr Wang also established the Beijing China Soft Technology Development Foundation in 2015, aiming to promote science and technology, and research and education in support of sustainable development. The foundation has sponsored a number of universities, research institutes and public organizations for education, research and environmental protection.

Devoted to investment, social welfare and education, Dr Wang graduated from the Doctor of Management programme at The Hong Kong Polytechnic University in 2014.

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