China’s economic growth is expected to continually decline over the next six years in a “soft fall” to an annual rate of 4% by 2020 — at least if the nation’s leaders fail to take action to implement business-friendly reforms, according to a report by the Conference Board.
Chinese officials have been forecasting a drop in economic growth to about 8% per year in what they labeled a “soft landing.” A report released Monday by business-research group the Conference Board, however, says the future economic picture is much more muted, especially if leaders don’t pass stringent measures to remake the economy.
“China’s remarkable success, over the last 15 years, in particular, was built on a historically unique development model,” said David Hoffman, a co-author of the report and the managing director of the Conference Board China Center for Economics and Business. “But the hallmarks of this approach — substantial state direction of capital and growth-fixated monetary policy — also generated deep-seated risks and imbalances. The course of China’s growth has always harbored the potential for deceleration at least as rapid as its acceleration. We are beginning to see the signs of this transformation take hold.”
The drop in growth would hinder an already fragile recovery, though such a steep decline would be a boon to multinational firms doing business in the country. Slow growth would provide a better pool of workers from which to hire the most talented employees, and Chinese leaders would be more open to foreign businesses operating locally, according to the report. That could open up more opportunities to acquire Chinese companies, a benefit for multinationals looking to invest further in the country.
While China’s growth is expected to rapidly decline from what many officials have predicted, the slower growth won’t reverse the generation of progress. The slowdown doesn’t imply a crisis: 4% growth “still represents a huge and dynamic opportunity,” said Andrew Polk, a Conference Board economist who co-authored the report.
“But China stands at a crossroads: The government and foreign investors alike must be honest in acknowledging the time has come for structural economic adjustment,” he said. “Transitioning away from the state-driven, credit-fueled boom that has amazed the world, toward a more sustainable, consumption-centric model will be a long and perilous process that causes much near-term pain.”
Over 30 years through 2011, China posted an average annual growth rate of 10.2%. That growth rate was unmatched by any nation in the post-World War II era and helped transform the country into a major world player. China’s annual growth has recently slowed and the country is aiming for a 7.5% growth target this year.
Other economic watchdogs also expect the Chinese economy to slow down, albeit at a much more modest pace. The International Monetary Fund anticipated China’s growth will hit 6.5% sometime in 2016. The World Bank expects China’s growth to slow to 7.1% in 2016.
