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China's economy is expected to recover rapidly in 2023, regaining its role as the undisputed engine of global growth. On the contrary, it has stagnated to the point of being called a "drag" on world output by institutions such as the International Monetary Fund (IMF).
Despite a number of problems – the housing crisis, weak spending and high youth unemployment – most economists believe that the world's second-largest economy will meet its official growth target of around 5% this year.
But they say that figure is still below the average annual growth rate of more than 6% in the decade before the pandemic, and 2024 looks increasingly ominous. After that, the country could fall into decades of stagnation.
Derek Scissors, a senior fellow at the American Enterprise Institute, a center-right think tank, said: "The challenge for China's economy in 2024 will not be GDP growth, but possibly more than 4.5 percent." "The challenge is that the only direction is down. ”
He warned that without major market reforms, China could fall into what economists call the "middle-income trap," in which emerging economies emerge quickly from poverty but struggle until they reach high-income status.
In the decades since China reopened to the world in 1978, it has been one of the fastest-growing major economies on the planet. Between 1991 and 2011, it grew by 10.5% per year. After 2012, the pace of expansion slowed, but it still grew by an average of 6.7% in the decade to 2021.
Scissors said, "The second half of the 2020s...... Economic growth will slow", he said, referring to the adjustment of the troubled real estate sector as well as the decline in the population.
The IMF has also become more pessimistic about the long-term outlook. In November, the agency said it expected China's economic growth to reach 5.4 percent in 2023 and gradually slow to 3.5 percent by 2028 under the influence of headwinds such as weak productivity and an aging population.
Will China become Japan?
As China's economic growth slows, some economists have compared it to Japan, which experienced two "lost decades" of stagnant growth and deflation after the housing bubble burst in the early 90s of the 20th century.
But Scissors doesn't think things will go in this direction, at least not immediately.
"The rest of the 2020s won't look like a lost decade – China's GDP growth will remain well above zero," he said.
However, in the long run, the biggest economic problem may be a demographic one. Last year, the Chinese population fell to 1.411 billion, the first decline since 1961.
The total fertility rate (i.e. the average number of babies a woman has in her lifetime) also fell to a record low of 1.09 last year from 1.30 two years ago. This means that China's fertility rate is now even lower than that of Japan, which has long been known for its aging society.
Demographics can have a significant impact on economic growth potential. Declining labor supply and increased health care and social spending could lead to widening fiscal deficits and an increase in debt burdens.
A reduction in labor force can also erode savings, leading to higher interest rates and lower investment. For example, housing demand is likely to decline in the long run. "By the 2040s, population contraction will make overall growth impossible.