Children make kites to embrace the arrival of spring at a half-day weekend camp in Beijing, on March 10. Targeted public investments can effectively reduce the costs of childbirth and childcare for families, improve the overall birth rate, and balance quantity and quality. Photo: Fang Ke/CSST

As China’s economy enters the high-quality development stage, nurturing new quality productive forces is crucial for building long-term economic growth momentum. High-quality population development and new quality productive forces are both important strategic measures proposed to cope with China’s new development reality. High-quality population development is not only an example of the successful implementation of new quality productive forces, but also a fundamental pathway to make the new development reality come true.

Improvement of total factor productivity

The emergence of new quality productive forces is driven by revolutionary technological breakthroughs, innovative allocation of production factors, deep industrial transformation and upgrading. By qualitatively changing the optimal combination of laborers, labor materials, and labor objects, new quality productive forces improve total factor productivity — its core indicator. The concept of new quality productive forces represents an innovative advancement in understanding Marxist productivity theory, further enriching the connotations of Xi Jinping’s economic thought. It is thus of major theoretical and practical significance.

High-quality population development is a crucial strategic measure proposed to address China’s significant demographic shifts, including changes in total population, an aging population, and birthrate declines. 

These two strategic choices respond to changing circumstances and are inherently connected. When assessing the reality of China’s economic and social development, the importance of high-quality population development in nurturing new quality productive forces is clear in two aspects.

First, new quality productive forces rely on the enhancement of total factor productivity, where high-quality population development is a key step in the process. The level of total factor productivity reflects the quality and sustainability of economic development. All economic growth models driven by total factor productivity represent a higher quality and more sustainable development. Total factor productivity can be derived from the optimized allocation of production factors such as capital and labor, as well as from improvements to efficiency driven by technological progress and innovation. While neither of these two sources are inherently superior or inferior, they reflect differences in the means of obtaining total factor productivity at different stages of development.

Since the reform and opening up, the development of factor markets in China has significantly increased the efficiency of the allocation of production factors, amplifying total factor productivity. With the continuous improvement of China’s socialist market economy, the allocation of production factors has also been greatly enhanced. However, the space for enhancing total factor productivity through factor reconfiguration is shrinking, and the development of new quality productive forces will primarily rely on innovation and technological progress. 

The central and most active element in innovation is the proactive initiative and creativity of laborers. From start to finish, humans are the most decisive force in productivity, and the human innovation capability inevitably relies on the comprehensive improvement of population quality. By achieving high-quality population development on advanced levels and on a larger scale, we can build a solid foundation for new quality productive forces.

Second, the main policy measures which promote high-quality population development objectively contribute to the formation of new economic growth momentum and nurture new quality productive forces. In the new development stage, fundamental changes to economic growth momentum are needed. These changes can be reflected in economic development dynamics and investment directions. The relationship between investing in people and investing in physical capitals must be rebalanced. Human capital and physical capital both play significant roles in economic growth. However, their contributions to economic growth vary at different stages of economic development and result in different investment returns. 

Studies show that as factor accumulation contributions to economic growth diminish, the return on physical capital investments in China is declining. In particular, in sectors requiring substantial physical capital investment, such as infrastructure and urban construction, China has already developed to a relatively high level. If we maintain previous investment levels in tangible physical capital at this stage, it would not maximize the efficiency of capital utilization. In comparison, China currently needs to focus on cultivating new quality productive forces to enhance total factor productivity contributions to economic growth. In order to cultivate new quality productive forces, there is a pressing need for comprehensive improvement in the quality of the entire population. 

Therefore, China needs to shift its economic development approach from investing in physical capital to investing in people, attaching greater importance to innovation and giving rise to the high-quality workforce’s foundational and decisive role in economic and social development.

People-centered approach 

So, how can we integrate high-quality population development and nurture new quality productive forces? In China’s current development stage and socioeconomic situation, a smooth integration must incorporate new development opportunities. Therefore, it is essential to seize this crucial window of opportunity to create new momentum for high-quality economic and social development. 

Firstly, compared to developed countries, China still has a latecomer advantage. By increasing investment in people through public fiscal expenditure arrangements, significant growth potential can be unleashed. For example, the average proportion of public spending on family benefits by OECD countries accounts for about 2.4% of their GDP, while in 2022, the share is much less in China. Let us examine this difference dialectically. A higher proportion of public resources invested in families in developed countries indicates that their policy systems are relatively stable, while the lower proportional investment in China implies a relatively broad policy space. This potential for future development contributes to the formation of new economic growth momentum. 

In fact, optimizing public resources allocations can significantly improve high-quality population development levels in China and inject new vitality into high-quality economic development through higher returns on human capital investment. It is evident that optimizing the allocation of public resource investment from “things” to “people” is a successful combination of the characteristics of the new development stage, a full and accurate implementation of the new development philosophy, and forms new quality productive forces by enhancing economic development quality and efficiency.

Furthermore, there is still considerable room to optimize China’s human capital investment. By optimizing the allocation of human capital investments, population development quality is improved, and long-term momentum can also be provided to nurture new quality productive forces. 

A large body of research shows that the return on investment in human capital varies at different stages. When investment in human capital occurs earlier, the corresponding return rate is higher. For example, the return on investment for early childhood education is higher than that for formal education, and the returns on investment in formal education are higher than returns on vocational education. This dynamic provides guidance for optimizing human capital investment policies, improving the efficiency of human capital investment, and promoting high-quality population development. 

Overall, China’s public investment in early childhood education lags behind developed countries, and there is room for further optimization in the scale and mode of vocational education investment. Therefore, reforming the human capital investment system and optimizing resource allocation will be crucial pathways for China to promote high-quality population development. More importantly, optimizing the structure of human capital investment can raise intergenerational human capital levels, laying a solid long-term foundation for the stability of new quality productive forces.

Lastly, it is necessary to make good use of the guiding role of public finance to coordinate support for childbirth and childcare, while also investing in human capital, as this can leverage fiscal funds and help form new quality productive forces. Refocusing public investments can effectively reduce the cost of childbirth and childcare for families, improve the overall birth rate, and balance quantity and quality. 

Childbearing decisions and childcare during infancy and early childhood have largely converged and become key areas of focus as China seeks to improve population quality. The various costs borne by families and individuals are currently affecting intentional fertiliy. This requires intensive reform efforts in relevant areas to provide institutional guarantees for high-quality population development, including deepening education system reform by extending compulsory education to preschool education, improving a multi-level social security system by incorporating childbirth and childcare services into the public service system, effectively reducing the cost of childbirth and childcare. 

In summary, the shift from investing in “things” to investing in “people” can increase consumption levels in the short term, inject new momentum into economic growth, and also create better conditions for new quality productive forces to develop.

Du Yang is director of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences.

Edited by YANG XUE