Essential Insights from Kavan Choksi on Why China’s GDP Growth is Slowing Down

As we reflect on the economic turmoil of the past decade, it’s hard not to marvel at China’s impressive recovery in the aftermath of the 2008 global recession. Business management and wealth consultant Kavan Choksi points out that the sheer scale of their government-led spending efforts was staggering, and without them, the global economy would have undoubtedly spiraled further into decline. However, as we face new challenges stemming from the lingering effects of  COVID-19 and geopolitical instability, the possibility of China holding the global economy’s reins again seems increasingly unlikely. While the future remains uncertain, there’s no doubt that we can learn much from their resilience and determination and how this has and will continue to shape the world economy moving forward.

Amid concerns about the slowing pace of economic expansion, a recent survey of economists has shown that China’s GDP growth is set for a significant rebound in 2023. While the figure for 2022 was a modest 3 percent, projections for the coming year are much more optimistic, with an average growth estimate of 4.7 percent. With the vast majority of predictions falling within the range of 4.0 to 5.9 percent, it seems that economists are betting on a strong second half of the year to support a recovery in economic growth. Of course, it’s not all smooth sailing, and there will surely be bumps along the road.

China’s economic growth has been nothing short of impressive. Despite the past year’s challenges, the country’s economic reforms since 1978 have seen its GDP grow at an almost unbelievable 10 percent annually. However, even the most optimistic predictions for recovery after COVID-19 do not indicate a return to the soaring growth rates of the past. The recent instability caused by lockdowns and repeated crackdowns on the private sector has left supply chains in tatters and investors feeling uncertain. And as if that weren’t enough, the news that China’s population declined for the first time in 60 years raises questions about the future workforce. China’s economic future will look very different from its past, but only time will tell what that future will hold.

China’s transition out of zero-COVID and the establishment of President Xi Jinping as the country’s leader for life raise an intriguing question: Can China ever return to its prior sustained high growth? While the pandemic may have disrupted the country’s economy, China has proven resilient during challenging times. As the country continues to invest in technological advancements and innovation, there is reason to believe that sustained high growth is still achievable. Moreover, China’s strategic partnerships and collaborations with other countries can potentially strengthen the international economic system and pave the way for continued growth. As we look to the future, China’s trajectory remains to be seen, but one thing is certain: this vast and dynamic nation is steadfastly committed to growth and development.

China has been synonymous with double-digit growth for quite some time, but economist Kavan Choksi believes its era of growth may almost certainly be over. In recent years, Beijing has been contending with many structural challenges that have slowed its economic expansion, such as rising debt levels and a declining population. It’s not all doom and gloom, though, as the growth rate that China continues to sustain in the years ahead will largely depend on how effectively the government responds to new challenges and policies. While President Xi has introduced new priorities, the impact of these changes remains to be seen. One thing is for sure, though: if Beijing adapts quickly and effectively, it may emerge stronger than ever from this period of economic turmoil.

China’s Economic Boom: A Rapid Rise Followed by a Silent Fall

China’s economy experienced a rapid rise over the past two decades, with GDP growth exceeding tenfold between 2000 and 2021. However, economists now predict this growth rate will slow to 2 and 5 percent over the next few years. This shift has been in progress for some time, and GDP figures only provide a limited and delayed snapshot of the Chinese economy. Economist Michael Pettis argues that the end of the high-growth era occurred 10 to 15 years ago when productive investment levels began to decline. Seeing how such rapid growth could have led to a silent fall without many people noticing is fascinating. While it’s an important reminder to always keep an eye on the big picture, this shouldn’t take away from the impressive accomplishments of China’s past economic boom. Despite all the challenges ahead, China remains a powerful force to be reckoned with on the global stage.

China’s Economic Landscape: Navigating an  Aging Population and Slowing Productivity

China, once the powerhouse of economic growth, finds itself facing unique demographic and economic challenges. Kavan says that the country’s rapidly aging population threatens to shrink its once vast labor pools, which have driven its low-cost industrial base. Furthermore, China’s declining birth rates have only aggravated this issue over the past years. In a surprising turn of events, India is set to surpass China as the most populous country in the world this year and has positioned itself as an attractive long-term investment opportunity. This shift in population dynamics, coupled with an increasing trend among multinational companies to relocate their manufacturing operations to other parts of Asia, such as Vietnam, Malaysia, India, and Bangladesh, has prompted China to reassess its position in the global market.

China’s growth engine, fueled by debt-heavy real estate and infrastructure investments, has peaked. According to Hung Tran, a senior fellow at the Atlantic Council, these investments are no longer delivering the same returns as before. The country’s total factor productivity, which measures the efficiency of an economy in turning inputs into outputs, is no longer experiencing the same growth as before 2008. Productivity growth averaged 2.8 percent before 2008 and has slowed to a mere 0.7 percent yearly.

The financial strain caused by excessive debt has pushed many corporations and local governments in China to the brink. As a result, Evergrande, the country’s largest property developer, experienced a major collapse in 2021. Despite the challenges, Kavan emphasizes that China’s leaders have options to alleviate the economic transition. One solution is to increase the retirement age for both men and women, as Japan has successfully done, to enhance the labor participation rate and ease the burden on the economy. However, this would only delay the crisis to some extent, as China’s working-age population is already shrinking after reaching a peak of nearly 1 billion in 2015.

Another potential solution is to abolish the hukou system, which links social benefits to household registration. Kavan believes this change would encourage more urbanization, as migrant workers in cities currently do not receive state benefits like public schooling, which deters further migration. Furthermore, embracing automation and leveraging China’s advanced digital infrastructure in manufacturing could help maintain industrial productivity.

Despite the efforts to navigate the challenges and ensure a smoother transition toward lower growth, China’s political leaders are already establishing new priorities for the country’s future journey.