Is China’s high-growth era over – forever?
When much of the world went through a major recession in 2008-2009, China, through enormous government spending efforts, managed to weather the storm and buoy the global economy.
With the world tottering “perilously close” to a global recession on the back of Russia’s war in Ukraine and three years of the COVID-19 pandemic, a repeat of a Chinese-led recovery seems less likely.
The country’s economy expanded by only 3 percent in 2022. Growth is projected to remain slow in the early quarters of 2023 before rebounding strongly in the second half of the year, according to a survey of 37 economists conducted by Nikkei in December. The average GDP growth figure put forth by the group was 4.7 percent, with the vast majority of predictions falling between 4.0 and 5.9 percent.
Yet even the most optimistic recovery scenario for China does not portend a return to the soaring growth rates that the country was used to for decades. China’s GDP has grown at an average of nearly 10 percent annually since Beijing embarked on economic reforms in 1978.
The world’s second-largest economy has had a tumultuous ride since the pandemic first began. After early optimism about its rebound in 2020, repeat crackdowns on the private sector and strict zero-COVID lockdowns have wreaked mayhem on supply chains and damaged investor confidence. And January brought more bad news: The country’s population declined last year for the first time in 60 years, raising worrying questions about its future workforce.
Now, with President Xi Jinping effectively established as China’s leader for life and the country finally transitioning out of zero-COVID, can the country ever hope to return to sustained high growth?
Rapid rise, silent fall
China’s years of high GDP growth meant that its economy ballooned more than tenfold between the turn of the century and 2021, from $1.2 trillion to nearly $18 trillion, according to World Bank data. By contrast, the GDP of the United States, the world’s largest economy, is a little more than double its size in 2000.
Over the coming years, however, China’s growth rate will slow down to between 2 and 5 percent, according to estimates by economists Al Jazeera spoke with.
Pettis said GDP – used initially to measure Western economies – is not built-for-purpose for capturing anomalies caused by China’s “soft budget constraints”, which refers to a model where the state steps in to cover for spending in excess of income earned from a project. For instance, a sewage system built in the Gobi Desert and one in Beijing might add the same value to China’s GDP, despite the former having little economic value.
“[In China], you can continue losing money for a very long time if it’s politically necessary… but it’s not reflective of the underlying productive capacity of the economy,” he said.
Ageing population, slowing productivity
The unique demographic and economic conditions China leveraged to achieve unprecedented growth in recent decades have faded away.
The vast labour pools that fuelled China’s low-cost industrial base are shrinking as its population ages rapidly. The country’s population decline in 2022 followed years of slowing birth rates.
China will be replaced by India this year as the most populous country in the world amid an accelerating shift by multinationals to move more manufacturing to other parts of Asia, such as Vietnam, Malaysia, India
This has left many overleveraged corporations and local governments near breaking point, as evidenced by the implosion of the country’s largest property developer, Evergrande, in 2021.
To be sure, China’s leaders could pull some levers to ease the pain of transition. They could raise the official retirement age for men (60) and women (55) to 65, “increasing the labour participation rate of the economy – a measure successfully employed by Japan”, said Hung. But even that might only partly delay the crisis: Already, the share of China’s population in the 15 to 64 age group is shrinking, after peaking at just under 1 billion in 2015.
Abolishing the hukou system – which ties social benefits to household registration – could increase urbanisation levels, sustaining China’s labour force, Hung said. The system at the moment often leaves migrant workers in cities without state benefits like public schooling, serving as a deterrent to further urbanisation.
Automating more manufacturing by building upon China’s advanced digital infrastructure could also help maintain industrial productivity.
Yet even as Beijing seeks to soften an otherwise turbulent descent into lower-growth altitude, its political leadership is setting new priorities in place for China’s journey.
and Bangladesh.
The debt-heavy investments in real estate and infrastructure that have historically driven China’s growth have peaked too. Hung Tran, a senior fellow at the Atlantic Council, said these investments have yielded diminishing returns.
China’s total factor productivity – a measure of how much output an economy actually churns out as a fraction of inputs – is no longer growing as it used to. Before 2008, productivity growth averaged 2.8 percent but has slowed to just 0.7 percent a year since then.
