China’s growth will slow to 2 per cent by the end of the next decade from 6.9 per cent last year, a London-based research firm has predicted, painting a gloomy picture for the world’s second biggest economy.
Under President Xi Jinping’s leadership, China may be unable to continue its “rapid climb up the economic ladder” in the coming decades to reach a high income status – a key part of Xi’s vision of becoming a “modern socialist country” by 2035 and a “rich and powerful socialist country” by 2050, according to a research note published by Capital Economics on Monday.
“Xi is aiming high … but the odds aren’t in his favour,” economists Mark Williams and Julian Evans-Pritchard wrote.
Compared with the growth trajectories of other Asian economies Japan, Korea and Taiwan, China’s is facing its own headwinds and structural restraints, including a rapidly ageing population and less friendly trading partners, they said.
Those issues mean China cannot be expected to quickly catch up with the United States in terms of per capita gross domestic product, the economists added.
The report presents an unusually bearish view on the future of China’s US$12 trillion economy and casts doubt on its growth model at a time when a growing number of institutions – including the International Monetary Fund – are agreeing with Beijing’s assertion that the country will continue to report steady, albeit slightly slower, expansion.
“This has no historical precedent and so it seems a stretch to argue that this is the most likely outcome”, that China can overcome the constraints faced by other Asian economies, Williams and Evans-Pritchard said.
The two economists also said Beijing’s centralised control and state intervention was causing “a widespread misallocation of resources” and would undermine productivity “even if a credit crisis can be avoided”.
“Unfortunately, there are few signs that Xi Jinping intends to row back state intervention. Instead, he appears to have concluded that maintaining state control over large swathes of the economy is crucial to the Communist Party keeping political control of the country,” they wrote.
China’s legislature passed revisions to the constitution in March that included removing the two-term limit on the presidency, enabling Xi to stay on as leader beyond 2023.
The country has reported almost uninterrupted strong growth in the last four decades, evolving from an economic backwater to a global powerhouse. It recorded the first acceleration in seven years with annual growth of 6.9 per cent in 2017, accounting for nearly one-third of global growth.
China’s expansion last year outpaced most developed countries – such as 2.3 per cent in the United States and the euro zone – but was slightly lower than India’s 7.1 per cent.
But the London-based researchers said China’s path of economic success over the past four decades was not much different from its Asian neighbours.
China’s per capita GDP reached US$8,800 last year, putting it in the middle-income country range and making it harder to make progress, with less scope for extra investment. The population is also ageing, and “this demographic change will act as a drag” rather than a dividend, according to the research note.
The Chinese government has also forecast a modest slowdown in growth. An article in state-run People’s Daily in 2016 by an “authoritative figure” widely thought to be Liu He, who is now vice-premier, argued that China’s growth curve would be “L-shaped” – meaning it would hover long-term at a medium growth level.
But Beijing does not expect a sharp deceleration. Cai Fang, vice-president of the Chinese Academy of Social Sciences, a prominent government think tank, told the South China Morning Post in March that economic growth was expected to remain above 3 per cent through 2050.
Other economists say China can rely on its vast domestic market to keep moving forward. Morgan Stanley chief China economist Robin Xing said at a recent briefing that the country could tap its huge domestic consumption potential to join the club of rich countries – in its smaller cities, for example, spending power could triple from US$2.3 trillion in 2017 to US$6.9 trillion in 2030.