China’s Growth Spurt Ends. What’s Next?

Key Points

• The era of rapid Chinese economic growth is ending. Chinese economic performance has been flawed since 2009, and Beijing now seems more willing to admit this, as job creation becomes less pressing.
• A turnaround is unlikely. It would require granting rural land rights, risky capital market reform, and decentralized innovation. Milder steps are possible but will be inadequate in the face of rapid aging.
• This sounds more momentous than it is. It’s not a new development. At home, the Communist Party can still deliver rising individual living standards. Overseas, China will remain the world’s second most important economy.

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Introduction

The time of outperforming Chinese growth is coming to an end. There will be a temporary growth surge whenever the global economy can put COVID-19 in the rearview mirror and, of course, the Communist Party can announce whatever it pleases whenever it pleases. But advocates for Chinese economic policies have lost the long-standing debate over whether the country will get old before it gets rich.¹ The most likely answer for when the People’s Republic of China (PRC) will be truly rich is “not while any of us are alive.”

There are two reasons. The first has to do with reality: The PRC faces an unprecedented aging challenge that will sharply intensify late this decade, has serious debt problems, and prefers wealth-killing approaches to innovation and rural land. This has been clear for some time.² The second is more recent and regards the central government’s version of reality. It has been willing to report progressively (and remarkably steadily) slowing growth while insisting plenty of jobs are being created, so slowing growth seems harmless.³ There have also been a series of slogans, given credibility by the recently published numbers, deemphasizing growth in favor of other objectives.

A frequent response from China bulls is that the economy is just naturally slowing because it’s so large. But the PRC is slowing more quickly than it should, due primarily to its own choices. It would take shocking policy shifts to avoid near-stagnation.

Still, there is room for a bit of optimism. Because official reporting is just catching up to reality, there is no crisis. Moreover, there is little prospect of the dramatic economic crisis some observers seem fixated on.⁴ The Chinese Communist Party’s (CCP) promises of jobs and technological advances that raise living standards can be fulfilled. And China will remain the world’s second most important national economy.

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Notes

1. Baozhen Luo, “China Will Get Rich Before It Grows Old: Beijing’s Demographic Problems Are Overrated,” Foreign Affairs, May/June 2015, https://www.foreignaffairs.com/articles/china/2015-04-20/china-will-get-rich-it-grows-old.
2. Derek Scissors, “Now or Never for the Chinese Economy,” American Enterprise Institute, December 4, 2017, https://www.aei.org/research-products/report/now-or-never-for-the-chinese-economy/.
3. National Bureau of Statistics of China, “The Overall National Economy Maintained the Recovery Momentum in the First Three Quarters,” press release, October 18, 2021, http://www.stats.gov.cn/english/PressRelease/202110/t20211018_1822968.html.
4. For example, see Martin Baccardax, “China Faces ‘Lehman Moment’ with Evergrande Collapse, so What Are the Risks?,” TheStreet, September 20, 2021, https://www.thestreet.com/markets/china-faces-lehman-moment-in-evergrande-bust-what-are-the-risks.