Technology Economy vs. Real Estate Economy: What Are the Differences?

Research Conclusions

Transitioning from real estate economy to technology economy involves significant changes across three dimensions: industrial structure adjustment, development model transformation, and institutional mechanism reform. These changes will have a profound impact on five key macroeconomic variables—production, inflation, employment, fiscal policy, and monetary policy.

From an industrial structure perspective:

• The previous industry structure centered on real estate infrastructure (the construction chain) has shifted to a structure focused on new quality productivity (emerging manufacturing and certain service industries).
• In terms of production, because new quality productivity has a stronger pull on other industries than the real estate construction chain, by 2025, the impact of main industries related to new quality productivity on total output will have surpassed that of the real estate construction chain.
• Regarding inflation, since emerging industries are positioned mid- and downstream, their weights are not low but their price volatility is much lower than upstream sectors, resulting in a weaker influence on PPI compared to input factors (non-ferrous metals, oil) and the construction-related sectors (black metals, building materials). This also means exports, from a statistical and industry perspective, cannot significantly drive PPI upward.
• Concerning employment, industries related to new quality productivity tend to generate lower labor remuneration per unit of output compared to traditional industries, potentially exerting downward pressure on income and employment. Promoting service consumption can serve as an effective hedge.

From a development model perspective:

• The traditional development model driving real estate economy relies on urbanization and population growth.
• In the era of a technology economy, urbanization slows, and the space for incremental expansion through infrastructure and real estate investment diminishes. Instead, optimizing existing stock and improving quality and efficiency become the main themes of urban development. Therefore, large-scale urban renewal driven mainly by expansion is less likely; there is greater focus on the opportunities brought by increasing the urbanization rate of registered residents; and attention is given to resource aggregation behind urban agglomeration strategies.
• In the era of a technology economy, China’s labor force may soon peak and decline. However, due to the continued increase in highly educated graduates entering the workforce, and the potential for sustained productivity improvements across manufacturing, the average wage level is expected to rise over the long term, supported by both declining labor supply and rising productivity.

From the macro-control mechanism perspective:

• The development model behind the real estate economy is fundamentally based on urbanization, with population migration within urban-rural structures providing housing demand and labor, local governments offering land for construction and housing under a fiscal system of shared taxes, land finance, and local government competition, and a financial system primarily relying on indirect financing to supply monetary capital.
• In the era of a technology economy, macro-control mechanisms should evolve accordingly: on the monetary and financial side, firstly, the way money is created should gradually detach from real estate; central bank purchases of government bonds could become a key tool during the transition; secondly, direct financing systems should play a more significant role. On fiscal and tax systems, firstly, the central government should assume more responsibilities; secondly, a tax system compatible with new business models and industries should be established. Administrative management should shift from GDP-centric to emphasizing people’s livelihood governance, from a competitive “horse race” mechanism to a unified national market. Additionally, foreign economic and diplomatic systems, especially the enhancement of international influence, will be crucial—if economic transformation increases reliance on external demand, then improving international influence through foreign economic and diplomatic policies will be key to supporting emerging industries.

By 2025, the impact of industries related to new quality productivity on total output will have exceeded that of the real estate construction chain (Section 1.1). This indicates that traditional economic descriptions are no longer sufficient for current research needs. Macroeconomic studies must pay more attention to the status of new quality productivity and the macro features brought about by the transition from old to new industries.

Economic transformation manifests in three interconnected aspects: industrial structure upgrading, development model change, and institutional mechanism reform. These three dimensions complement each other and are indispensable. This paper compares and analyzes the differences between the technology economy and the real estate economy from these three perspectives.

I. Industrial Structure and Macroeconomic Characteristics

Industrial structure upgrading refers to the shift from an industry structure centered on real estate infrastructure (the construction chain) to one focused on new quality productivity (emerging manufacturing and certain services). This adjustment will significantly influence production, inflation, and employment.

1.1 New quality productivity has already surpassed the real estate construction chain in terms of contribution to industry

Based on the 2023 input-output table mapped to national industries, using demand coefficients to select industries related to the construction chain as representatives of traditional industries; and according to the 11th collective study session of the Political Bureau of the CPC Central Committee, which defined new quality productivity as involving “high technology,” “high efficiency,” and “breaking away from traditional growth models,” the main industries related to new quality productivity are identified:

• Real estate construction chain includes: real estate, ferrous metals, building materials, housing construction, civil engineering, furniture, construction safety, architectural decoration.
• Main industries for new quality productivity include: automobiles, transportation equipment, electrical machinery, digital economy, instrumentation. The digital economy category merges digital manufacturing (computers, communications, electronics) and digital services (telecom, internet, software services) based on the 2021 classification.

Comparison yields the following conclusions:

1. The growth rate of new quality productivity industries is generally faster than that of the real estate construction chain, and downstream industries in the construction chain are developing better than upstream ones. This reflects rapid economic transformation and the establishment of new development models within the construction industry.

2. From the perspective of added value as a proportion of GDP: Since 2020, the share of new quality productivity industries has increased while the real estate construction chain has declined. Currently, the main industries related to new quality productivity still account for less than the real estate construction chain in GDP. This indicates that traditional industries remain a vital pillar of the national economy.

3. From the perspective of contribution to total output: By 2025, industries related to new quality productivity will have surpassed the real estate construction chain. Considering the industry-driven effects on other sectors, emerging industries are characterized by “high efficiency,” with a notably strong pull on related sectors such as non-ferrous metals. To evaluate the overall macroeconomic impact of the transition, influence coefficients derived from input-output tables can be used as adjustment factors, estimating that by 2025, the main industries of new quality productivity will have a greater impact on total output than the real estate construction chain.

1.2 Inflation: Input-driven factors and construction sectors remain key

Most manufacturing sectors related to new quality productivity are midstream equipment manufacturing, whereas the real estate construction chain is more upstream. Different industries have varying capacities to influence PPI, so adjustments in industry structure will lead to different PPI characteristics.

Decomposing PPI year-over-year contributions by industry shows that PPI mainly reflects price changes in upstream cyclical sectors. Since 2023, the low level of YoY PPI is primarily due to declines in upstream sectors like coal, oil, and construction-related industries (black metals + building materials); the second reason is excess capacity in midstream or weak downstream demand.

The key reason why emerging industries cannot significantly drive PPI YoY is not because their weights are low (in fact, mid- and downstream sectors account for about two-thirds of PPI), but because their price volatility is inherently low. Therefore, without upstream influence, relying solely on exports cannot substantially lift PPI YoY.

1.3 Employment: Urgent need to develop service consumption

Labor remuneration per unit of output in industries related to new quality productivity is lower than in real estate construction, indicating that economic transformation will cause structural and overall adjustments in the employment market.

This suggests that technological progress-driven industry restructuring typically reduces labor-intensive traditional industries and increases capital- and technology-intensive emerging industries, which may lead to a decrease in labor remuneration per unit of output in the economy, creating a dilemma of maintaining wages and employment. Developing the service sector can play a significant role in counteracting this.

Service industries tend to be less affected by technological progress in terms of labor costs, often exhibiting the “Baumol’s cost disease,” where productivity gains in manufacturing reduce labor share, but service industries’ labor costs remain relatively stable. Long-term development of the service sector can help expand total labor remuneration, thus alleviating short-term employment pressures caused by technological progress.

Hence, promoting service consumption can also be a key focus in reforming and improving the socialist distribution system, stimulating consumption, and supporting economic growth.

二、Development Model and Macro Background

Behind industrial structure adjustments, the dominant force is the transformation of development models. Moving away from scale-driven growth, emphasizing high-quality development, is the main theme of economic transition. Specifically, it involves shifting from the previous extensive growth model relying on urbanization scale expansion and population effects to a high-quality development model based on optimizing urban stock and improving productivity.

2.1 From incremental expansion of urbanization to stock optimization

The previous development model centered on real estate infrastructure as the main driver of urbanization. Urbanization brought infrastructure and real estate demand, as well as construction workers. During this period, rapid industrialization led to a large transfer of surplus rural labor to cities under the dual urban-rural structure, with urban expansion, rural migrant workers, and real estate investment growing hand-in-hand.

Under this model, due to the Lewis turning point being before the long-term low-cost labor advantage, labor-intensive manufacturing thrived, driven by consumption upgrades during urbanization and export under globalization. Investment, export, and consumption were the main growth drivers.

As urbanization slows, the space for incremental infrastructure and real estate investment diminishes, and stock optimization and quality enhancement become the main themes of urban development. The 2025 Central Urban Work Conference states that China’s urbanization is shifting from rapid growth to steady development, moving from large-scale incremental expansion to stock quality and efficiency improvements. In 2024, the urbanization rate of permanent residents exceeded 65%, entering a stage aligned with international experience, with growth slowing in recent years.

From this trend, two insights emerge:

• First, in the context of stock optimization, large-scale urban renewal driven mainly by demolition and reconstruction is less likely; instead, renovation and adaptive reuse will be more common.
• Second, with the urbanization rate of registered residents approaching a plateau, there is still considerable room to promote the urbanization of registered residents, especially by improving urban governance and public services to unlock new consumption potential.
• Third, regional strategies centered on urban agglomerations and metropolitan areas are expected to enhance resource allocation efficiency and scale effects amid slowing urbanization.

2.2 From demographic dividend based on cost advantage to a quality advantage

The past reliance on construction and low- to mid-end manufacturing was largely due to population size advantages, often called demographic dividend. As China’s population growth slows and aging accelerates, the total labor force may soon peak and decline, with rising labor costs. However, due to continuous productivity improvements, China’s labor productivity has been increasing, and since 2020, the acceleration of economic transformation has even begun to outpace the growth of labor costs, indicating that the demographic advantage is shifting toward a quality advantage.

From this, it can be inferred that with the increasing proportion of graduates with higher education, especially in science and engineering, overall manufacturing productivity is expected to continue rising, further transforming the demographic dividend from quantity to quality.

三、Institutional Mechanisms and Macro Regulation

Whether it’s industrial restructuring or development model transformation, macro regulation and institutional reform are essential. Theoretically, establishing new production relations suited to new quality productivity is key to furthering economic transition, and creating macro regulation systems conducive to high-quality technological innovation is a crucial part.

3.1 Institutional development behind traditional economic models

Historically, the institutional framework supporting real estate infrastructure and some low- to mid-end manufacturing, promoting urbanization and rural-urban migration, was gradually established through key CPC Central Committee meetings:

The 14th Central Committee’s Third Plenum in 1993 adopted the “Decision on Several Issues Concerning the Establishment of a Socialist Market Economy,” marking China’s economic takeoff over the next three decades. Major measures included:

First, market system reform: promoting SOE reform and development of non-public sectors.

Second, financial system reform: establishing indirect financing as the main channel, and a managed floating exchange rate system to support exports.

Third, fiscal and tax reform: implementing a split tax system to enhance local government revenue and investment incentives, and establishing land transfer systems.

Fourth, land system reform: implementing paid, limited-term land use rights, accelerating urban housing reforms, and fostering real estate development.

Overall, these reforms laid the basic framework for a socialist market economy, enabling rapid growth of the private sector, and making exports and real estate the main economic drivers. The development model became one where private enterprise powered growth, with export orientation, a dollar-pegged monetary system, and real estate financing as internal demand.

The 16th Central Committee’s Third Plenum in 2003 further deepened reforms, emphasizing urbanization, legal reforms, and social welfare. It promoted:

• Urban-rural integration and household registration reform to transform the dual structure;
• Administrative reform and legal system improvements to promote rule of law;
• Employment, income distribution, and social security reforms to address social conflicts.

These measures continued the socialist market economy framework, easing social tensions from rapid urbanization, regulating fiscal management, reducing illegal charges, and reinforcing land finance reliance—thus consolidating the traditional development pattern of real estate + infrastructure + export.

The 18th Central Committee’s Third Plenum in 2013 advanced comprehensive reforms to address challenges under the “new normal,” focusing on market liberalization and governance modernization. Key points:

• Promoting further market-oriented reforms;
• Modernizing governance systems and capacity;
• Addressing declining low-cost labor advantages in foreign trade and slowing urban real estate demand, with measures such as encouraging non-public economic growth, financial innovation, and industrial upgrading.

3.2 Institutional features behind traditional economic models

In summary, the traditional extensive development model centered on real estate, infrastructure, and labor-intensive manufacturing relies on macro control systems mainly in three areas:

1. Monetary and financial system: Money creation and multiplier depend heavily on real estate, passing through three stages:

• Stage 1: Real estate as collateral during credit expansion—post 1993, land rights and bank credit fueled credit growth, with the currency multiplier expanding via mortgage and development loans, until 2008.
• Stage 2: Real estate temporarily yields to infrastructure investment—post-2008 crisis, export slowdown led to reduced real estate growth; fiscal stimulus (e.g., 4 trillion yuan) boosted infrastructure, which in turn supported real estate.
• Stage 3: Real estate supports monetary base issuance—post-2014, with declining exports and real estate pressures, the central bank introduced MLF and other tools, and policies like PSL and LPR strengthened regulation over the property sector.

2. Fiscal and tax system: Split tax system and land finance underpin the real estate-driven model. Since the 14th plenum, local governments rely heavily on land transfer revenues, which now account for over 90% of local fiscal income.

3. Administrative management: Fragmented governance and local competition—local officials’ incentives tied to GDP growth—have driven infrastructure investment, with government funds comprising over 70% of infrastructure spending, reinforcing the real estate and infrastructure growth pattern.

In sum, the real estate development model underpins rapid urban population growth, with local governments providing land and infrastructure financed mainly through indirect credit, and real estate prices serving as key assets. After 2021’s “three red lines” policy, this model has been halted.

3.3 The macro regulation mechanism behind technological economy

The 20th CPC Central Committee’s Third Plenum emphasized the importance of effective macro regulation. Current monetary and fiscal policies are less effective in stabilizing growth because the macro regulation system has not yet adapted to support the development of a technology economy. Comparing the features of tech industries and traditional real estate models, reforms are needed.

In monetary and financial systems: First, money creation should gradually detach from real estate; second, direct financing should play a more prominent role.

The era of large-scale infrastructure expansion is over. During the transition, fiscal support—such as government bond purchases—may become a key monetary tool. Since real estate-related credit growth is subdued, green loans and other direct financing channels aligned with technological innovation will be critical.

Compared to the high leverage characteristic of real estate, supporting tech industries relies more on direct financing markets. Developing capital markets that support innovation is vital. In the medium to long term, once traditional sectors stabilize, monetary policy will still influence these sectors, but expectations for credit growth should be moderate; the development of the tech economy is more closely tied to capital markets.

In fiscal and tax systems: First, further optimize the split tax system, with the central government assuming more responsibilities; second, establish tax systems compatible with new industries and business models. As land finance diminishes with the decline of real estate, local government debt and fiscal capacity are strained, requiring the central government to take on more.

However, the central government’s revenue is also tight: the general public budget mainly funds transfer payments to local governments, which can issue bonds within debt limits. Long-term, expanding local tax sources and designing new tax systems for emerging industries—such as equity investment, infrastructure bonds for innovation, and assets like patents and carbon emission rights—will be essential.

In administrative management: Moving from GDP-centric evaluation to comprehensive governance including people’s livelihood, environmental protection, and social welfare. The 18th plenum emphasized correcting the overemphasis on GDP, incorporating environmental and social indicators, and shifting towards high-quality urban development characterized by vitality, comfort, green low-carbon, safety, virtue, and efficiency.

In the context of regional integration and urban agglomerations, a unified national market is necessary to prevent resource misallocation caused by local protectionism. Additionally, international influence and foreign diplomacy are increasingly important—especially as external demand becomes more critical in the new economic landscape. For example, in 2025, Belt and Road investments will be a key driver of exports, with increased exports to Africa and other regions, reflecting external demand’s importance.

If economic transformation leads to greater reliance on external markets, enhancing international influence through foreign economic and diplomatic policies will be vital for supporting emerging industries.

This article is sourced from: Dongfang Securities Research Report

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