The slowdown in China’s growth
The Lowy Institute just published a report on China’s growth prospects. The main conclusions are:
- China will likely experience a substantial long-term growth slowdown owing to demographic decline, the limits of capital-intensive growth, and a gradual deceleration in productivity growth.
- Even with continued broad policy success, their baseline projections suggest that annual economic growth will slow to about 3% by 2030 and 2% by 2040, while averaging 2–3% overall from now until 2050.
- China will still most likely become the world’s largest economy by any measure by around 2030. But its size advantage over America would be slim and it would remain far less prosperous and productive per person than the United States and other rich countries, even by mid-century.
Revising down the rise of China
By: Lowy Institute
Five possible paths for China’s growth
Michael Pettis argues that:
[I]t’s a mistake to view China’s growth in terms of whether it can or cannot achieve a particular GDP target. China’s GDP growth is not a measure of the country’s economic output and performance in the same way the statistic is for other major economies. China’s GDP growth target is an input decided by Beijing at the beginning of the year. Its fulfillment depends on the extent to which the economic authorities are able and willing to use the country’s resources and debt capacity to achieve the required amount of economic activity.
Given this assumption he identifies five paths China could follow going forward:
- China can stay on its current path and keep letting large amounts of nonproductive investment continue driving the country’s debt burden up indefinitely;
- China can reduce the large amount of nonproductive investment on which it relies to drive growth and replace it with productive investment in forms like new technology;
- China can reduce the large amount of nonproductive investment on which it relies to drive growth and replace it with rising consumption;
- China can reduce the large amount of nonproductive investment on which it relies to drive growth and replace it with a growing trade surplus;
- China can reduce the large amount of nonproductive investment on which it relies to drive growth and replace it with nothing, in which case growth would necessarily slow sharply.
The Only Five Paths China’s Economy Can Follow
By: Michael Pettis – Peking University
