What’s Next for China’s Economy?

Photo by NASA GSFC
Photo by NASA GSFC


Over the past year, the Chinese economy has shown signs of a slowdown from its incredible rates of growth over the past 35 years. This has led to fears of a slowing of growth globally, and has roiled financial markets, commodities, currencies, and real estate. The overall uncertainty and gloominess of the future outlook has shaken many China believers. Is this the beginning of the end? Or is it just the turbulence of a major world economy going through a transformation to a bigger, more mature economy?

An optimistic view says that this turbulence is temporary, and that China will resume its growth. Though growth may not be as quickly as it once was, the economy will benefit from other sources such as consumer growth and private investment, rather than only on government development. However the pessimistic view sees systemic challenges to this transformation of the Chinese economy as it faces rising wages, underemployment of college graduates, public policies that do not encourage accountability and transparency, environmental degradation, political corruption, and overuse of corporate debt that has fueled the growth of China. The list can go on, but it is clear that there are serious challenges to continued economic growth.

Income inequality will continue to spur greater wealth creation at the top cities and top earners (see the growing list of billionaires in China). While this does good for individuals at the very top of China’ earnings ladder (and for philanthropy from the wealthy), overall China’s economy faces a slowing growth rate during the course of this transformation. It is the low wage, unskilled workers who suffer the brunt of the economic slowdown. This video from the Financial Times explains in stunning graphics the massive movement of migrants and its effect on the growth of China.

It could take decades for China to overcome the challenges and resume stronger economic growth through higher wages, greater education levels, and maintaining levels of investment in China versus outflows of investment due to corruption or mistrust in the system. As the population ages, and as less numbers of working age people are called on to support the increasing elderly population, China faces daunting challenges ahead.

It is time for China, and the world, to accept this new reality and ratchet down growth expectations. Now may be the end of the Chinese migrant miracle. The road ahead looks painful for China and for the world. But now could also be the beginning of the Chinese economic transformation of the future, one that will benefit China, and the world, in bigger and better ways than we have seen thus far.

Leave a Reply

Your email address will not be published. Required fields are marked *