GoldmanEconomIcsSachsResearch203019 0ctober 2023 6:04AM HKTAsia Economics AnalystSizing the "New Three"in the Chinese Economy203Policymakers and investors often refer to battery,new energy vehicle(NEV)andMaggie Wei6renewable energy as the "New Three"of the Chinese economy,in comparisonGoldman Sachs Asia)L.L.C.to the"Old Three"such as furniture,home appliance and clothing in ChineseXinquan Chen+852-2978-2418 xinquan.chen@gs.comexports;or property,infrastructure and processing trade in the overall economy.Goldman Sachs (Asia)L.L.C.NEV and battery production,as well as renewable energy capex,have seenHui Shan+852-2978-66341hui.shan@gs.comsignificant increases in recent years and are expected to continue growingGoldman Sachs (Asia)L.L.C.rapidly in coming years,adding to headline GDP growth in China.Lisheng Wang+852-39664004Leveraging the framework in our research on green capex,we investigate howlisheng.wang@gs.comGoldman Sachs (Asial)L.L.C.much the "New Three"would directly and indirectly contribute to China's GDPYuting Yangover the next five years.Taking NEV as an example,we found that,for each 120306trillion RMB domestic final demand in NEV production,induced domesticAndrew Tiltonvalue-added would be 840bn RMB and induced urban employment would be+852-2978-1802 andrew.tilton@gs.comroughly 2.8mn persons.Both value-added amount and employment impact areslightly smaller than residential housing construction per yuan of demand.Putting NEV,battery production and wind/solar power generation capex together,our analysis suggests that the "New Three"could only partially offset the dragon growth from the property downcycle (including both through property0双碳文库investment and upstream sectors,and also through real estate services,fiscaland consumption channels).The likely impact on real GDP growth (fromexpanding "New Three"but a shrinking property sector and declining traditional20306vehicle production)is-0.5pp per year from 2023-2027 based on our estimates.Based on our expectation of expanding "New Three"but a shrinking propertysector and declining traditional vehicle production,the net impact on urbanemployment will also be negative.Frictional unemployment will likely exist aswell.We continue to believe China's overall economic growth in the next fewyears will decelerate as the multi-year property downturn proceeds,despite the203060双碳文库growth to slow from 4.5%in 2024 to 3.7%in 2027.203060双203060双203060双203060双碳交库Investors should consider this report as only a single factor in making their investment decision.For Reg ACcertification and other important disclosures,see the Disclosure Appendix,or go towww.qs.com/research/hedge.html.2030Goldman SachsAsia Economics AnalystSizing the "New Three"in the Chinese Economy6双碳文库China's decarbonization efforts boosted growth in new energy vehicle (NEV),battery andrenewable energy sectors.These sectors are often referred to as the "New Three"ofthe Chinese economy,which highlights their significance in policymakers'pursuit of"high-quality growth"explains their exponential growth in recent years,and suggeststheir increasing importance to the overall economy in future years.Our analysissuggests that the "New Three"could only partially offset the drag on growth from theproperty downcycles (including both through property investment and upstream203060双碳文库sectors,and also through real estate services,fiscal and consumption channels).Theimpact on real GDP growth (from expanding "New Three"but a shrinking propertysector and declining traditional vehicle production)is-0.5pp per year from 2023-2027gradually towards -0.2 in 2027.Although these sectors are often discussed together,the channels through which theycontribute to the Chinese economy differ somewhat.Renewable energy involves largeinvestment in wind and solar power generation,which mostly adds to GDP growththrough investment induced production across upstream sectors.NEV and batteryproduction are playing increasingly important roles in the total production chain of the203060双碳文库economy.Exhibit 1 showed the rapid growth of NEV and battery production,andwind/solar power generation capacity in recent years.Exhibit 1:NEV and battery production,and wind/solar powergeneration capacity showed exponential growth in recent yearsndex2015=100)1ndex2015=100)60双碳文库5.0004,0004,0003,0003,000203060双碳文库2.0002,0000201520162017201820192020202120230203060双碳文库Gauging the importance of the "New Three"in the Chinese economy:theexample of NEVNEV production volume increased from 1 million units in 2018 to 6.7 million units in203060双碳文库2022.Although the share of GDP accounted for directly by activities of NEV productionis relatively small at less than 1%of GDP (our estimate of share in 2022),overall impacton China's GDP can be bigger if we count domestic economic activities embodied infinal demand for NEV production,which include sector activities such as batteryproduction and non-ferrous metals (e.g.,copper and aluminum)smelting and pressing.库