China Center Quick Note: Barring the unexpected, China’s economy to downshift considerably, as a natural consequence of both size and maturation

This members-only China Center Quick Note discusses China's medium- and long-term outlook

In the latest update of The Conference Board’s Global Economic Outlook, January 2013, we project that China’s trend growth rate will slow to 5.8 percent over the 2013-2018 period and fall further to 3.7 percent from 2019-2025. 

Our projections are based on the country’s capacity to grow given its supply-side factor endowments, in particular capital, labor and technology. Because China has been growing above trend for the past several years, the economy’s deceleration is likely to be more rapid than many observers expect, due in large part to dissipating gains from the “catch up” growth China has enjoyed for some time. Dissipating catch up growth should manifest itself in much lower growth rates for Total Factor Productivity and capital accumulation – the two factors that have driven high growth rates in China the most over the last two decades. 

We include optimistic and pessimistic scenarios that might see China grow at 8.0 percent or 3.7 percent, respectively, over the 2013-2018 period, with our base scenario being an average of 5.8 percent. These different scenarios emanate from changed assumptions about the economy’s overall productivity growth, as influenced by conceivable macro-policy directions. 

Depending on the circumstances, a slowing China characterized by reduced capital investment and a shift toward services industries need not necessarily be disruptive for either employment or wealth accumulation by households. Indeed, slower growth rates accompanied by these two features could arguably lead China onto a more stable and sustainable growth path in the future.