China's faltering growth engine

Οικονομική Ενημέρωση

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  • Γενική Οικονομία

10 Ιαν 2023

After decades of high economic growth, the Chinese growth engine is slowing down, raising the question of whether the economy could fall in the middle-income trap

  • China has developed itself into the world’s factory, with an economy that has grown fast for decades and lifted many millions out of poverty. Since 2010, however, economic growth is slowing down, raising the question of whether the economy could fall into the so-called ‘middle-income trap’.
  • It is too early to draw conclusions on this, as it is not yet clear what the results of earlier policy measures will be, and these policies may change in the coming years. Nevertheless, multiple developments in the Chinese economy point to a further growth slowdown. We have listed ten of them.
  • Currently the consequences of the zero-Covid policy and the real estate sector crisis are putting a brake on GDP growth, while high debt at local governments and state-owned enterprises is a risk for financial stability. The long-term growth outlook is negatively affected by the ageing of China’s population, a human capital mismatch and low productivity growth, aggravated by policy measures related to controlling private business and a focus on self-reliance.
  • In addition to these domestic factors, China's economic growth is affected by the country’s relationship with the rest of the world. Many countries where Chinese exports are destined want to reduce their dependence on imports. Making supply chains more secure will lead to only a partial and gradual decoupling of economies, but increasing geopolitical rivalry - of which the trade war is just a part - is nonetheless an uncertain factor that can only turn out negative.
  • The 14th Five-Year Plan of the Chinese Communist Party (CCP) stated that China will become a ‘moderately developed’ economy by 2035. Crucial to achieving this goal will be that China manages to sufficiently adjust its current, faltering growth model. It is therefore worrying that the policy choices made as a result of geopolitical rivalry now appear to be counterproductive in terms of increasing productivity growth.

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