Technology Economy vs. Real Estate Economy: What are the differences?

Research Conclusion The transition from a real estate economy to a technology economy is driven by significant changes in three dimensions: industrial structure adjustment, development model transformation, and institutional reform, which will have a significant impact on five key macroeconomic variables, including production, inflation, employment, fiscal policy, and monetary policy. From the perspective of industrial structure: The past industrial structure centered around the real estate infrastructure chain (i.e., the construction chain) has shifted to an industrial structure centered around new quality productivity (emerging manufacturing and some service industries); In terms of production, due to the significant pull of new quality productivity on other industries compared to the real estate construction chain, by 2025, the impact of major industries of new quality productivity on total output will exceed that of the real estate construction chain; In terms of inflation, since emerging industries are located in the mid-to-lower reaches, their weight is not low, but their price volatility is far less than that of upstream factors (non-ferrous metals, oil) and the real estate construction chain (ferrous metals, building materials). This also means that exports, from a statistical structure and industrial characteristics perspective, cannot significantly drive a rebound in PPI. In terms of employment, the industry characteristics of emerging industries indicate that the labor compensation created per unit of output is lower than that of traditional industries, which may create pressure on income and employment, while encouraging service consumption can effectively hedge against this. From the perspective of development model: The traditional development model that facilitated the real estate economy is driven by urbanization and population growth; In the era of the technology economy, urbanization is slowing down, and the incremental expansion space for infrastructure and real estate investment is shrinking, with stock optimization and quality improvement becoming the theme of urban development. Therefore, first, the probability of large-scale urban renewal primarily based on expansion is low; second, attention should be paid to the potential opportunities brought by the increase in the urbanization rate of the registered population; third, focus on the resource aggregation behind urban cluster strategies. In the era of the technology economy, the number of labor force in China may soon peak and decline. However, due to the large number of highly educated graduates still entering the job market, the overall manufacturing productivity is expected to continue to improve, and per capita wage levels are also expected to rise in the long term under the dual support of declining labor force numbers and rising productivity. From the perspective of macro-control mechanisms: The development model behind the real estate economy essentially provides urban housing demand and labor through population migration under the background of urbanization, with local governments providing construction and housing land under the tax-sharing system, land finance, and local government competition model, while the predominantly indirect financing financial system provides monetary capital; In the era of the technology economy, the macro-control mechanism in terms of the monetary financial system should gradually detach from real estate; central bank purchases of government bonds may become a key tool for basic currency issuance during the transition period; the direct financing system should play a more important role; in terms of the fiscal tax system, the central government should take on more responsibilities, and a tax system that adapts to new business formats and models should be established; in terms of the administrative management system, there should be a shift from a sole focus on GDP to emphasizing livelihood governance, and from a horse-racing mechanism to a unified national market; attention should also be paid to the foreign economic and diplomatic system, especially the enhancement of international influence. If economic transformation inevitably leads to an increased dependence on external economic demand, then enhancing international influence through foreign economic and diplomatic systems will also become a key measure for the government to regulate and ensure the development of emerging industries In 2025, the pull of industries related to new quality productivity on total output has already surpassed that of the real estate construction chain (Text 1.1). This means that the characterization of the traditional economy is increasingly inadequate to meet current research needs. Current macroeconomic research must pay more attention to the status of new quality productivity and focus more on the changes in macroeconomic characteristics brought about by the transition between old and new during the economic transformation process. Economic transformation is reflected in three aspects: industrial structure upgrading, development model reform, and institutional mechanism reform. These three aspects complement each other and are indispensable. This article conducts a comparative analysis of the technology economy and the real estate economy from these three dimensions. 1. Industrial Structure and Macroeconomic Characteristics Industrial structure upgrading refers to the shift from an industrial structure centered on the real estate infrastructure chain (i.e., the construction chain) to one centered on new quality productivity (emerging manufacturing and certain service industries). This adjustment will have significant impacts on production, inflation, and employment. 1.1 Production: New quality productivity has surpassed the real estate construction chain We mapped the 2023 input-output table to various national economic sectors, using the complete demand coefficient to select the real estate construction chain industry as a representative of traditional industries. Based on the three key definitions of new quality productivity proposed at the 20th Politburo's 11th collective study session—“high technology,” “high efficiency,” and “breaking away from traditional economic growth methods”—we identified the main industries related to new quality productivity: The real estate construction chain includes: real estate, black metals, building materials, housing construction, civil engineering, furniture, construction and installation, and architectural decoration. The main industries of new quality productivity include: automobiles, transportation equipment, electrical machinery, digital economy, and instruments and meters. The digital economy category combines digital manufacturing (computers, communications, electronics, etc.) and digital services (telecommunications, internet, software services, etc.) based on the "Classification of the Digital Economy and Its Core Industries (2021)." The comparison reveals the following basic conclusions: 1. The growth rate of new quality productivity generally exceeds that of the real estate construction chain, with downstream development in the real estate construction chain generally better than upstream. This reflects the rapid advancement of economic transformation and the establishment of new development models within the construction chain. 2. From the perspective of value added as a proportion of GDP, since 2020, the proportion of new quality productivity has increased while that of the real estate construction chain has decreased. Currently, the main industries of new quality productivity still account for less than the real estate construction chain in GDP. This reflects that traditional industries, when viewed independently, remain one of the important pillars of the national economy. 3. From the perspective of the pull on total output, by 2025, the main industries of new quality productivity have already surpassed the real estate construction chain. Considering the development of different industries and their pull on other industries, emerging industries exhibit "high efficiency" characteristics, with significantly stronger pull capabilities on related industries such as non-ferrous metals. In order to assess the impact of transformation on the macroeconomic landscape, the influence coefficient calculated using the input-output table serves as an adjustment factor, indicating that by 2025, the pull of major industries with new productivity on total output has already surpassed that of the real estate construction chain. 1.2 Inflation: Input Factors and the Construction Chain Remain Key The manufacturing sector within the industries related to new productivity mostly belongs to the midstream equipment manufacturing industry, while the real estate construction chain is more related to upstream industries. Different industries have varying impacts on the Producer Price Index (PPI), so adjustments in the industrial structure will lead to PPI exhibiting characteristics different from the past. By breaking down the year-on-year PPI contributions from different industries, it can be seen that the PPI almost only reflects price changes in upstream cyclical industries, so the main reason for the low year-on-year PPI since 2023 is the year-on-year decline in upstream coal, oil, and construction chain (black metals + building materials); secondly, it is due to overcapacity in the midstream or insufficient demand in the downstream. The key reason why emerging industries cannot significantly drive the year-on-year PPI is not due to the lower weight of midstream and downstream (in fact, midstream and downstream industries still account for 2/3 of the PPI), but rather because the price volatility in midstream and downstream industries is inherently lower. Therefore, it can also be inferred that without affecting upstream, relying solely on exports cannot truly drive a significant rebound in year-on-year PPI. 1.3 Employment: Urgent Need to Develop Service Consumption The labor remuneration rate (labor remuneration created per unit of output) in the new productivity industries is lower than that of the real estate construction chain, indicating that the economic transformation process will lead to structural and overall adjustments in the labor market. This means that the industrial structure adjustment catalyzed by technological progress will typically reduce traditional labor-intensive industries and increase capital and technology-intensive emerging industries, which may lead to a decrease in the labor remuneration created per unit of output in the national economy, thus the economy may face a dilemma of stabilizing wages and stabilizing employment. To address the issue of declining labor remuneration rates across society due to technological progress, developing the service industry can play a significant role. The service industry has long been subject to the "Baumol's disease" phenomenon, where manufacturing often sees a decline in labor remuneration rates due to productivity improvements from technological progress (which Marx referred to as the increase in the organic composition of capital), but the service industry typically finds it difficult to significantly reduce labor costs due to technological progress Therefore, the service industry has long been a labor-intensive sector, with relatively high labor remuneration rates that remain stable during periods of technological advancement. Developing the service industry is beneficial for expanding the total remuneration of laborers in society, thus helping to address the short-term employment issues brought about by technological progress. Thus, we can also infer that the development of service consumption is expected to become one of the key focuses in the current reform and improvement of the socialist distribution system, promoting consumption and economic development. II. Development Model and Macroeconomic Background Behind the adjustment of industrial structure, the dominant force is the transformation of the development model. Abandoning the scale complex and emphasizing high-quality development is the main line of the transformation of the development model during the economic transition period. Specifically, it is switching from the extensive development model that relied on urbanization scale expansion and population scale effects in the past to the high-quality development model that currently relies on urban stock optimization and productivity improvement. 2.1 Urbanization shifts from incremental expansion to stock optimization The past development model, centered on real estate and infrastructure, was primarily driven by urbanization. Urbanization brought demand for infrastructure and real estate, as well as construction workers. During this historical period, the rapid industrialization process led to a massive transfer of surplus rural labor to urban areas under the dual structure of urban and rural areas, with urban scale expansion, rural labor moving to cities for work, and rapid expansion of real estate investment complementing each other. Under this development model, due to the long-term low labor costs before the Lewis turning point, labor-intensive manufacturing also developed, with the main demand coming from the consumption upgrade of Chinese residents during the urbanization process and exports under globalization. The past development model drove investment, exports, and consumption. As urbanization slows down, the incremental expansion space for infrastructure and real estate investment shrinks, and stock optimization and quality improvement become the themes of urban development. The 2025 Central Urban Work Conference pointed out that China's urbanization is transitioning from a rapid growth period to a stable development period, and urban development is shifting from a stage of large-scale incremental expansion to a stage primarily focused on stock quality improvement and efficiency enhancement. By 2024, China's urbanization rate of the resident population has exceeded 65%, entering a plateau period based on international historical experience, and the growth rate of urbanization has also slowed in recent years. In light of this trend, two points can be recognized: First, under the main background of stock optimization, the probability of large-scale urban renewal driven by major demolitions and constructions is relatively low; the more likely direction for urban renewal is repair and renovation; Second, in the context where the urbanization rate of the resident population is difficult to improve, there is still considerable space to promote the urbanization rate of the registered population, and improvements in urban governance levels and the equalization of basic public services are expected to tap into the consumption potential of new registered populations; Third, regional strategies represented by urban agglomerations and metropolitan areas promote resource concentration, which is expected to enhance the efficiency of resource allocation and continuously strengthen scale effects against the backdrop of slowing urbanization 2.2 The demographic dividend has shifted from cost advantages to quality advantages The key reason for relying on the construction industry and low-to-mid-end manufacturing in the past was the advantage of population scale, commonly referred to as the demographic dividend. Currently, as China's population growth rate declines and the country enters an aging era, the number of labor force participants may soon peak and decline, facing the issue of continuously rising labor costs. However, due to the continuous improvement in China's labor productivity, it is expected to keep pace with the growth rate of labor costs in the long term. Since 2020, the acceleration of economic transformation has even led to labor productivity growth outpacing the growth rate of labor costs, indicating that the advantage of population scale is transitioning to an advantage of quality. From this point, it can be inferred that as the proportion of graduates with higher education, especially in science and engineering, in the labor market continues to rise, the overall manufacturing productivity in society is still expected to continue improving, further transforming the demographic dividend of labor-intensive industries into the demographic quality dividend of technology-intensive emerging industries. 3. System Mechanisms and Macroeconomic Regulation Whether it is the adjustment of industrial structure or the transformation of development models, it cannot be separated from the reform of macroeconomic regulation systems. Theoretically, constructing a new type of production relationship that matches the development of new productive forces is key to further promoting economic transformation, and establishing a macroeconomic regulation system conducive to high-quality development models that favor technological innovation is an important part of this. 3.1 The process of institutional construction behind the traditional economic model Historically, the system suitable for the development of real estate infrastructure and some low-to-mid-end manufacturing, promoting urbanization and the transfer of rural and urban populations, has been gradually established through several key points of the Third Plenary Session. The Third Plenary Session of the 14th Central Committee held in 1993 passed the "Decision of the Central Committee of the Communist Party of China on Several Issues Concerning the Establishment of a Socialist Market Economic System," marking the beginning of thirty years of rapid economic growth in China. Key measures include: First, market system reform, promoting state-owned enterprise reform and the development of the non-public economy; Second, financial system reform, establishing an indirect financing-based financial market to lay the foundation for real estate development and establishing a managed floating exchange rate system to support export growth; Third, fiscal and tax system reform, establishing a tax-sharing system to enhance local enthusiasm for attracting investment, indirectly promoting the establishment of a local government competition system; Fourth, land system reform, implementing a paid limited-term transfer system for land use rights, accelerating urban housing system reform, and promoting the development of the real estate industry. Overall, this has constructed the basic framework of a socialist market economic system, promoted the rapid development of the non-public economy, and driven exports and real estate to become the main economic engines. The Chinese economy has formed a development model characterized by a vibrant private economy, export orientation, a currency system anchored to the U.S. dollar, and real estate as a financing vehicle for domestic demand The Third Plenary Session of the 16th Central Committee held in 2003 passed the "Decision of the Central Committee of the Communist Party of China on Several Issues Concerning the Improvement of the Socialist Market Economic System," which, on one hand, continued to deepen the reform measures of the Third Plenary Session of the 14th Central Committee, and on the other hand, increased the requirements for urbanization, legalization, and social welfare. Specifically, first, promote the transformation of the urban-rural dual structure and drive urbanization development through the reform of the urban-rural and household registration systems; second, advance the rule of law in administration and governance through deepening the reform of the administrative management system and improving the economic legal system; third, reconcile the social contradictions accumulated under the extensive development model through reforms in employment, distribution, and social security systems. Overall, the reform measures of the Third Plenary Session of the 16th Central Committee continued the framework of the socialist market economy established by the Third Plenary Session of the 14th Central Committee, effectively alleviating the social contradictions brought about by rapid urbanization, while standardizing the fiscal budget management system, significantly reducing the phenomenon of arbitrary charges, and at the same time strengthening local governments' reliance on land finance, further consolidating the traditional development model of real estate + infrastructure + exports. The Third Plenary Session of the 18th Central Committee held in 2013 reviewed and approved the "Decision of the Central Committee of the Communist Party of China on Several Major Issues Concerning Comprehensive Deepening of Reform," promoting multi-dimensional and multi-level reforms to address the challenges faced by the traditional economic model under the "new normal." The focus was on both the market and the government: first, to promote further marketization of the economic system; second, to promote the modernization of the national governance system and governance capabilities. Objectively, in response to the challenges posed by the "new normal" to the real estate - infrastructure - export model, specifically, first, the low-cost labor advantage of the foreign trade sector began to fade; second, the rapid urbanization led to a slowdown in real estate demand within cities. The central government's response measures at the institutional reform level were: first, to further invigorate the non-public economy, encourage financial innovation, and continue the traditional economic development model; second, to emphasize industrial upgrading and technological innovation, opening a new chapter in the development of emerging industries. 3.2 Institutional Characteristics Behind the Traditional Economic Model In summary, we find that under the traditional extensive development model centered on real estate, infrastructure, and labor-intensive manufacturing exports, the core macro-control system is mainly reflected in three aspects: the monetary financial system, the fiscal and tax system, and the administrative management system: In terms of the monetary financial system, the creation of base currency and the monetary multiplier rely on real estate, going through three stages: In the first stage, real estate mainly enlarges the monetary multiplier in the process of re-lending. After the Third Plenary Session of the 14th Central Committee established the limited-term transfer system of land ownership, the commodity housing system, and a financial system primarily based on bank indirect financing, real estate can naturally serve as collateral to activate credit and enlarge the monetary multiplier. Coupled with the managed floating exchange rate mechanism established by the Third Plenary Session of the 14th Central Committee and the mandatory settlement system, it brought about an economic model of export earning - mandatory settlement - base currency issuance - inflow into real estate, manifested as synchronized resonance in export, M1, and real estate investment growth, with real estate mainly serving as a credit tool to enlarge the monetary multiplier, a process that continued until 2008; In the second stage, real estate briefly gave way to infrastructure. The global financial crisis in 2008 led to a decline in export growth, which in turn caused a slowdown in real estate growth. The monetary easing and fiscal stimulus represented by the 4 trillion yuan plan in 2009-2010 provided short-term support for infrastructure as the core of the economy, and also belatedly boosted real estate investment; In the third stage, real estate also played a role in assisting the issuance of base currency. The continued decline in export growth put pressure on M1 and real estate. In response to the requirements of the Third Plenary Session of the 18th Central Committee to "encourage financial innovation" and "modernize the national governance system and governance capacity," the central bank introduced MLF in 2014. Faced with the sluggish housing market due to the slowdown in household leverage, the government launched the monetization of shantytown renovations (PSL is also a way to increase the issuance of base currency). The monetary and financial system broke free from the influence of exports, and with the establishment of LPR in 2013, monetary policy formed a complete regulatory capability over the real estate industry. 2. In terms of the fiscal and tax system, the tax-sharing system and land finance are the foundation of the real estate economic model. After the 14th Central Committee's Third Plenary Session changed the system to a tax-sharing system, the central government's financial power expanded, and local governments took on more responsibilities. Combined with the establishment of the limited-term land use rights transfer system, local governments have used land transfer income as a key supplement to fiscal revenue, which has accounted for more than 90% of government fund budget revenue in recent years. 3. In terms of the administrative management system, the combined administrative governance structure and the "local government competition" management system are another key mechanism for the dual-track approach of real estate and infrastructure. The incentive model for local administrative leaders is related to local GDP growth performance, which has strengthened local governments' willingness to promote economic development to some extent. Against the backdrop of urbanization, infrastructure investment has become the most important lever for local governments, with the proportion of government funding in infrastructure investment exceeding 70% and still gradually increasing. In summary, the development model behind the real estate economy is set against the backdrop of urbanization, with rapid growth in urban population. Local governments provide construction and housing land under the tax-sharing system, land finance, and local government competition model, while the predominantly indirect financing financial system provides monetary capital. The key asset price underpinning this model is real estate prices. With the establishment of the "three red lines" in 2021 leading to a decline in housing prices, this model has come to a halt. 3.3 The macro-control mechanism that should be behind the technology economy The 20th Central Committee's Third Plenary Session focused on the effectiveness of macroeconomic regulation. The current monetary policy's effectiveness in stabilizing growth is declining, and the fiscal policy has limited room for maneuvering. The reason is that a macroeconomic regulation mechanism suitable for the development of the technology economy has not been established. Compared to the characteristics of the technology industry and the traditional real estate model, the traditional macroeconomic regulation mechanism should also undergo reform and adjustment. In terms of the monetary and financial system: First, the method of money creation should gradually detach from real estate; second, the direct financing system should play a more important role. Regarding the issuance of base currency, the era of large-scale construction expansion is over. One of the key driving forces for growth during the transition from old to new momentum is fiscal support. The central bank's purchase of government bonds may become a key monetary issuance tool during this transitional period. In terms of monetary derivation, due to the low growth rate of real estate-related chains, the method of monetary derivation has passively decoupled from real estate. Real estate mortgages and development loans have negatively impacted the overall loan balance growth rate, while green loans, which are more relevant to the technology economy during the transition from old to new momentum, have become a key hedge. Comparative analysis shows that the high leverage characteristic of the real estate industry in the past naturally favored the expansion of credit scale, while the technology industry relies more on the direct financing system. Therefore, developing a capital market that supports technological innovation is one of the important tools for constructing support for the technology economy. In the medium to long term, when the traditional economy stabilizes, the monetary policy's regulatory capacity over traditional industries will still be strong, but expectations for credit scale growth should not be overly high, as the development of the technology industry is more related to the capital market. In terms of the fiscal and tax system: First, further optimize the tax-sharing system, with the central government assuming more responsibilities; second, establish a tax system that adapts to new business formats and models. Due to the shrinking of land finance in the context of the real estate economy's end, coupled with the high debt ratio of local governments and heavy debt reduction tasks, local governments' spending capacity has declined, making it necessary for the central government to assume more responsibilities. However, the objective situation is that the central government’s revenue and expenditure are also tight: the central government's general public budget revenue can be seen as entirely used for transfer payments to localities, and the central government can issue government bonds for its own expenditures due to its relatively low debt ratio. Therefore, in the long term, the real way to open up fiscal space, promote fiscal participation, and regulate the development of the technology economy needs to rely on the "expansion of local tax sources" proposed by the 20th Central Committee's Third Plenary Session, and the interpretation meeting's proposal to "study tax systems that are compatible with new business formats." Existing local cases include achieving fiscal participation in supporting the development of emerging industries through equity investment and including the infrastructure of emerging industries in the scope of special bonds used as project capital. Looking ahead, data elements, patent markets, and carbon emission rights, which are closely related to emerging industries, are expected to become supplements to the existing tax system. In terms of administrative management system: from GDP-centric to livelihood governance, from the racehorse mechanism to a nationally unified market. On one hand, in the process of stopping the extensive development model and moving towards a high-quality development model, local governments need to pay more attention to technological innovation and livelihood governance while focusing on growth scale. The Third Plenary Session of the 18th Central Committee clearly required correcting the bias of evaluating political achievements solely based on GDP, incorporating environmental protection and livelihood indicators into the assessment system, and promoting the shift from a single economic indicator to a comprehensive evaluation. The Central Urban Work Conference in 2025 also clearly stated that "urban development is shifting from a stage of large-scale incremental expansion to a stage primarily focused on improving quality and efficiency of existing stock," and proposed requirements for urban governance to be "vibrant," "comfortable and convenient," "green and low-carbon," "safe and reliable," "promoting virtue and kindness," and "convenient and efficient." On the other hand, in the context of urban agglomeration replacing the past urbanization, the protectionism under the local competition model is not conducive to the rational allocation of resources "according to local conditions," making it necessary to build a nationally unified market for regulation and optimization. In addition, it is also important to pay attention to the foreign economic diplomacy system, especially the enhancement of international influence. Compared to the past, where demand in the construction industry could be naturally created by the urbanization process; for the current emerging industries dominated by high-end manufacturing, a significant portion of their demand comes from external sources, which means that exports are highly important to the technological economy. Taking the export situation in 2025 as an example, investment in the Belt and Road regions has become a key force driving exports. For instance, after the China-Africa Cooperation Forum in 2024, China's exports to Africa increased by 24% in 2025, mainly driven by capital goods such as ships, machinery, and automobiles, reflecting local investment demand. If economic transformation inevitably leads to an increased dependence on external demand, then enhancing international influence through the foreign economic diplomacy system will also become a key measure for the government to regulate and ensure the development of emerging industries. 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