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China Growth To Average 4.5% This Decade, Oxford Economics says

China will take longer than other Asian economies to catch-up with living standards in the developed world.

<div class="paragraphs"><p>(Source: Yan Ke /Unsplash)</p></div>
(Source: Yan Ke /Unsplash)

China’s gross domestic product will grow an average 4.5% over this decade, according to a new forecast by Oxford Economics, meaning China will take longer than other Asian economies such as Korea and Taiwan to catch-up with living standards in the developed world.

Annual growth will further slow to around 3% on average between 2030-40, according to the baseline forecast by lead economist Adam Slater. China’s actual economic growth could fall short of that baseline forecast due to worse-than-expected demographic challenges, possible decoupling from the US and allies, mishandling of financial risks or a prolonged real-estate slump, Oxford Economics said in a report. 

Other economists have also made similar projections, with Bloomberg Economics forecasting China’s economy will grow at an average pace of 4.6% this decade.

Population Decline

The working age population is likely to continue shrinking according to the forecast, meaning that GDP growth will be reliant on “continued heavy levels of investment and a relatively rapid pace of productivity growth,” the Oxford report said. 

China’s productivity growth has already slowed but will remain high relative to other emerging economies, according to the baseline forecast. However, trade and especially technological decoupling from China by the US and allies could cut 0.3-0.6 percentage point per year from growth by slowing productivity gains, the note added.

The majority of China’s growth over the next decade will be driven by increasing the stock of physical capital, the according to the forecast, adding that China may struggle to maintain its current high-levels of physical investment due to rising debt-levels. “Should investment rates start to decrease towards more normal levels, then growth could slump if there is not a dramatic improvement in investment efficiency,” Slater added. 

One risk to the forecast comes from China’s real-estate slump, according to the report. “A steep downturn in the sector could have a big negative impact on growth for several years,” it said.

The forecast implies China’s GDP will overtake the US’ in dollars at current exchange rates by around 2033, Slater said. However, the baseline forecast suggests China’s government would not meet its stated goal of doubling GDP from 2020 levels by 2035, as that would require annual growth averaging about 4.7% over that period.

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