China’s economy will be ‘far less prosperous’ in coming years as headwinds intensify, Australian think tank says
- Becoming the world’s largest economy is still on the cards for China, according to the Lowy Institute, but vastly surpassing the United States is out of the question
- Report stands in stark contrast to more bullish outlooks by some Chinese economists, but even they contend that demographic challenges and external threats pose outsized threats
China’s economy will “never enjoy a meaningful lead” over the United States and will remain far less prosperous and productive per person even by the mid-century point, though it will still become the world’s largest economy, according to a new report.
The Sydney-based think tank Lowy Institute predicts that China’s economic growth will slow sharply to roughly 3 per cent a year by 2030, and will average 2 to 3 per cent per year on average from now until 2050.
China’s GDP growth target is within reach, ‘but it will come at a cost’
Beijing has set its GDP growth target at “around 5.5 per cent” for this year, but several economists have revised down economic forecasts for China based on a number of factors, including geopolitical tensions, and say further adjustments could come.
“This is broadly in line with the lower-case projections of the United Nations, which suggest that, by 2050, China’s working-age population will have shrunk by roughly 220 million people – about one-fifth of its current level.”
China is not really a ‘miracle’ economy when it comes to productivity
He went on to note that “rapid ageing will see [China’s] demographic profile quickly converge on that in Europe, which is itself ageing. Over-65s will constitute more than a quarter of the Chinese population by 2050”.
China has achieved significant productivity gains over the past four decades, since the implementation of its reform and opening-up policy, with productivity growth averaging 3.9 per cent a year over the entire period, according to the Lowy Institute’s estimations.
“[But] China is not really a ‘miracle’ economy when it comes to productivity,” Rajah said. “Instead, China’s historically strong productivity performance appears more a reflection of its incredibly low starting point … and the large catch-up dividends unleashed by gradual market-oriented reforms over the ensuing decades.”
‘It’s a headache’: China’s local officials grapple with ‘common prosperity’
The report also flagged specific additional headwinds for China, with a comparison to other “East Asian miracle economies” such as South Korea and Taiwan, which have benefited from relatively unfettered access to Western markets and technologies.
“Geopolitics means China can no longer do [that], and instead faces the prospect of intensifying ‘decoupling’ with the United States and potentially other advanced Western economies,” Rajah added.
The report also said China’s ability to rely on infrastructure projects is reaching its limits in terms of driving economic growth, and will run into diminishing returns.
“The merits of China’s overinvestment model have been debated for some time,” Rajah said. “By 2040, public capital per worker in China would be US$120,000 – about 50 per cent higher than most rich economies … and heading towards a level more than twice as high as that in any other country by 2050.”
