China’s growth may slow to 8% per year through 2020

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Two Morgan Stanley Economists predict that China’s economy could be set to slow to 8% per year growth

Wang and Ho believe China is currently at an inflection point, based on research and data gathered by British economist Angus Maddison. Therefore, they expect Chinese GDP growth to slow to 8 percent a year over the next decade, which is about 2 percentage points lower than the average growth rate achieved in the previous decade.

But at even at this slower rate, China’s nominal GDP would triple in size (assuming 3.5 percent annual CPI inflation) and would also be on track to surpass that of the U.S. soon after 2020.

China, of course, is a very unique economy and its growth may decelerate rather modestly compared to other countries that have passed the inflection point.

The longevity, pace, and especially size of China’s economic expansion is unprecedented, so it may not conform to the tendencies of other countries. In addition, the deregulation of the household registration system, strong national savings, and reforms to improve its capital markets are three factors that could also mitigate China’s growth deceleration, added Wang and Ho.

The Washington DC based International Fund for China’s Environment estimates that China must spend at least 2 percent of its GDP annually—over $100 billion—to clean up decades of pollution which now threaten food production, public health, and worker productivity. Without this investment, China will lose far more due to the environmental damage.

In other news related to China’s economy – County-level cities accounted for 56.31 percent of China’s gross domestic product last year, and will continue to remain as an important economic engine.

Smaller cities can grant more advantages for entrepreneurship, and smaller cities also mean lower costs. China’s urbanization rate is relatively low at above 40 percent. The small- and medium-sized cities will play a key role in raising the urbanization rate to 60 percent over the next decade.

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