Over the next decade, China’s growth will slow, probably sharply. That is not the view of malevolent outsiders. It is the view of the Chinese government. The question is whether it will do so smoothly or abruptly. On the answer depends not only China’s own future, but also that of much of the world.
Official Chinese thinking was on display at last month’s China Development Forum, organised by the Development Research Center of the State Council (DRC), which brought influential foreigners together with high-level officials. Among the background papers was one prepared by economists at the DRC, entitled “Ten-year Outlook: Decline of Potential Growth Rate and Start of a New Phase of Growth”. Its proposition is that China’s growth will slow from more than 10 per cent a year from 2000 to 2010 to 6.5 per cent between 2018 and 2022. Such a decline, notes the paper, is consistent with the slowdown since the second quarter of 2010 (see chart).
The authors note two possible reasons for the decline: either China has fallen into the “middle income trap” of aborted industrialisation; or it is managing the “natural landing” that occurs when an economy begins to catch-up with advanced economies. This latter scenario played out in Japan in the 1970s and South Korea in the 1990s. The DRC paper argues that, after three and a half decades of 10 per cent growth, it is at last happening to China.