Chinese Economic Growth seen as 4% in 2020-2025, Preparing for the Downturn
After a generation of unprecedented economic growth, China faces a deep structural slowdown and broad uncertainty in the decade ahead, according to a new series of reports from The Conference Board. While Chinese leaders have publicly proclaimed a "soft landing" that will usher in a period of growth in the current range of 7 to 8 percent for the foreseeable future, The Long Soft Fall in Chinese Growth, published today by The Conference Board, projects a more rapid and significant transition that will downshift China closer to 4 percent growth after 2020.
"China's remarkable success, over the last 15 years, in particular, was built on a historically unique development model," said David Hoffman, Vice President and Managing Director of The Conference Board China Center for Economics and Business, and a co-author of the report. "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 taking hold."
The Long Soft Fall in Chinese Growth builds on a large body of work from The Conference Board which has consistently been more cautious on China's economic outlook than other observers. In addition to the main research report released today, The Conference Board has also published a 75-page white paper laying out the data and analysis behind its projections and a short strategic overview designed for executives of multinational corporations operating in China.
The Upside of Disappointment
Companies planning on sustained 7 to 8 percent growth in China are likely in for a rude awakening. However, the impending slowdown—and government and private-sector responses to it—also contain major opportunities for those ready to seize them. The Long Soft Fall in Chinese Growth explains why the period 2014–19 will see:
A dramatically improved talent environment. Competition will ease for China's best and brightest, who will increasingly value stability and career development over the rapid turnover of the boom years.
Openings for mergers and acquisitions. As valuations comes to ground and local firms run into difficulties, purchases and partnership opportunities will rise—perhaps balloon—for foreign companies.
Reduced competitive intensity. Facing shrinking access to capital, Chinese companies are likely to compete more conservatively in order to protect their balance sheets.
More hospitable government dealings. The growing hubris of Chinese officials toward foreign business may reverse sharply in some regions as local leaders pursue more receptive policies to attract and retain needed investment.
Indeed, while it may be fatal to many local enterprises and hugely disruptive for unwary multinationals, the slowdown projected doesn't imply a crisis poised to reverse a generation of progress.
"Even at 4 percent growth, China still represents a huge and dynamic opportunity," said Andrew Polk, resident economist at The Conference Board China Center and a co-author of 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. 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. Ultimately, China has no other choice."
