China could struggle to keep growth above 4 per cent over next decade, warns prominent economist

Beijing must address China’s ageing population, debt levels and falling investment over the next few years to sustain growth above 5 per cent, says Gao Shanwen

Gao, a frequent critic of government policies, says unsustainable investment and accrued risks from stimulus policies pose threat to economy

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Gao Shanwen, chief economist from Essence Securities, says China must address systemic risk to sustain growth above 5 per cent. Photo: Handout

Published: 7:00pm, 28 Nov 2019Updated: 9:29am, 29 Nov 2019

China’s economic growth could fall as low as 4 per cent over the next decade partly because of unsustainable investment and accrued risks from overuse of policies aimed at cushioning the country's economic slowdown, a leading Chinese economist has said.

If Beijing cannot handle challenges stemming from an ageing population, debt levels and falling investment over the next few years, China may struggle to keep growth above 4 per cent between 2020 and 2030, said Gao Shanwen, chief economist from Essence Securities, in a speech on Wednesday.

Gao, a frequent critic of government policies, has made controversial comments on the Chinese economy in the past. In a speech about the US-China trade war in July last year, he said China’s policy of opening up was essentially opening the doors to the United States and warned that Chinese below the age of 30 should brace for a hard life if the tariff battle was not adequately addressed.

Looking at China’s economic transformation in the past decade in the context of comparable economies from East Asia, China’s growth was normal or even better. However, ageing, leverage, and investment rates are in an uncomfortable position, and these are difficult to resolve

Gao Shanwen

But the possibility of growth falling to 4 per cent is in line with an estimate from the World Bank’s September report, “Innovative China”, which predicted growth of between 4 per cent to 5.1 per cent from 2021 to 2030, depending on the progress of reforms that could boost labour productivity.

China’s economic transformation, which is mostly reflected in the rise of the services sector and decline of the industrial sector, started around 2010, Gao said. When China started the transition, the country was at a similar level to Japan in 1968, South Korea in 1991 and Taiwan in 1987 in terms of gross domestic product (GDP) per capita, he added.

“Looking at China’s economic transformation in the past decade in the context of comparable economies from East Asia, China’s growth was normal or even better. However, ageing, leverage, and investment rates are in an uncomfortable position, and these are difficult to resolve,” the economist said.

When an economy transforms, the share of fixed asset investment in the economy generally falls. But in China’s case, the process has been extremely slow. During their economic transformation, investment in South Korea and Japan dropped 6 per cent, whereas in China, it has fallen less than 3 per cent over the past decade, official data from China showed.