China’s meteoric rise to an economic powerhouse is undeniable, however, doubts are emerging about the longevity of this rise. The geopolitical landscape is also raising concern for those who have business dealings with the world’s second-largest economy. To help get a better understanding of the economic future of China we’ll look at fertility, population growth, China’s GDP growth rate, and the geopolitical landscape and how that is laying a course for China’s future.
China is the most populated country in the world, boasting a population of some 1.5 billion people. This massive domestic population has had a direct impact on the economic growth of China, the more people there are, the larger the workforce, and the more consumers to buy those products and services, it’s like a circular economy. The emerging middle class, which is estimated to incorporate some 1.2 billion people by 2027 will all need access to housing, furniture, appliances, transportation, and education for their younger generations, so the domestic growth opportunities for Chinese companies seem assured.
China has been able to compete with a relatively large labour force advantage and the ability to grow its own industries as a result of access to a large pool of workers. However, according to Eric Zhu and Tom Orlik from Bloomberg “Low fertility—the legacy of the one-child policy, may indicate that China’s working-age population has already peaked. If fertility rates continue to remain low, it’s projected that the population may shrink by more than 260 million over the coming three decades, a drop of 28%.” (Zhu, Olrik) This could result in a shortage of workers and a potential slowing of economic growth. The government has responded to this trend and has eased its policy restrictions, attempting to encourage more of its people to raise families and spending less time working. China has also been investing vast amounts of resources to make its workforce smarter and more efficient to offset the decline in available workers. Although it may be too little too late to reverse this macro trend.
Another area that could provide us insight into whether China’s economic rise will continue or not is to look at its trends in GDP growth. The International Monetary Fund has claimed that China’s GDP could decline by as much as 8% by 2030, along with this, it has also been reported that China’s actual GDP is some 1.8 percentage points lower than what is actually reported. Time will tell if this is truly the case, however, a decline in GDP seems inevitable in the near term.
Lastly, by looking at the current geopolitical landscape in relation to China, we can see how geo-political events could and in some cases already have affected its economy. The escalation of tensions between China and the U.S. has made the economic future of both countries more uncertain. Tariffs put in place by both countries will only stifle economic growth and change the dynamics of multilateral trade with China’s trading partners. Along with tariffs, the increased trade uncertainty has made it difficult for other countries, most notably Australia, to effectively cooperate with both China as a trading partner and the U.S. as a strategic ally and counter trading partner. There are reports of Australian exports, such as Wine, Cotton, and Timber coming under pressure from Chinese tariffs, only to be replaced by US products as substitutes. The process of settling these trade disputes, via the intervention of the World Trade Organisation, will be slow and drawn out, putting Australia in a difficult situation.
These factors have led us to the conclusion that China’s economic future remains uncertain. If programs designed to increase the birth rates and counter an ageing population are effective then we could see a new world-leading economy emerge within the next decade. However, if GDP continues its declining trajectory, and geopolitical risks continue to hamper multilateral trade then we may see China’s growth stagnate. Time will tell which outcomes come to fruition.
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