Federal Reserve Has Six Scenarios for China’s GDP Growth to 2030 – slowing a little to slowing a lot

The Chinese economy has been growing at a rapid pace for over thirty years. Most of this growth has come from higher labor productivity, while growth of employment has diminished along with a slower rate of increase in the working-age population. This paper looks at the challenges that China will face over the next two decades in maintaining its rapid pace of economic growth, especially as working-age population growth slows further and then begins to decline. Key questions include whether China will be able to continue to devote nearly half of its GDP to investment, whether such investment will become less productive as the capital -labor ratio continues to rise whether labor participation and employment rates will fall as the population becomes less rural, and whether future shifts out of rural employment will go more toward the services rather than the manufacturing sector, where productivity is higher. In the baseline scenario economic growth falls gradually from its current pace of about 10 percent to near 6½ percent by 2030. However, a combination of less optimistic, but still reasonable assumptions, results in a reduction in the growth rate to about 1½ percent by 2030.

Baseline is Gradual slowing to 6.5% per year GDP growth in 2030

Six Scenarios – Baseline, 4 alternatives and a worst case

In her “baseline” forecast, which showed growth slowing to just over 6 percent by 2030, Haltmaier assumed the employment-population ratio stayed at current levels, investment stayed high, workers kept moving out of primary industries, and investment shifted from primary and secondary industries into the service, or tertiary sector.

She also sketched out four alternative scenarios: slower growth in employment; lower investment; reduced incentives to invest; and a decline in the share of high-productivity manufacturing.

In all cases, Chinese output slowed by more than in the baseline forecast. But the real damage was done when all four factors began to bite together. In that worst-case scenario, growth halves to 5 percent by 2020 and declines to under 1 percent by 2030.

The four middle scenarios are
Slowing to 8.1-8.3% or 5.7% in 2020
Slowing to 5.5%, 4% or 3% in 2030

The worst case would be slowing to 4.7% in 2020 and 0.9% in 2030.

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