Research Briefing | Oct 13, 2023

Why we lowered our China medium-term growth forecasts

The combined large shocks from years of regulatory uncertainty, the prolonged zero-Covid policy, and a housing correction have undermined China’s supply-side potential more than we previously anticipated. We have therefore cut our estimates of China’s future potential GDP growth rates.

What you will learn:

  • Despite slowing, we still expect China’s economy to eventually converge with the US in GDP size by the mid-2030s. However, the bigger challenge for policymakers in the coming years is growth sustainability.
  • As the economy rebalances slowly towards a consumption-driven growth model – so a moderation in the contribution from capital – and amid a decline in the working age population, the outlook for China’s trend growth depends to a large extent on raising total factor productivity (TFP). Our base case assumes that continued reforms and the uptrend in R&D spending drive a recovery in TFP in the coming decades.
  • The risks to our already-cautious forecasts are still moderately skewed to the downside, particularly if the pace of capital accumulation slows more than we anticipate. Geopolitical tensions leading to more restricted access to technology will also pose a risk to productivity growth.
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