China’s Economic Outlook Clouded by Aging Population and Debt Concerns

A report shows that 68 percent of surveyed senior citizens in China intend to return to the workplace after retirement while 30 percent of the interviewees say they have economic pressure.

China’s economic momentum appears to be waning as it confronts significant challenges from an aging population and an ongoing debt crisis. Despite an ambitious target set by Premier Li Qiang in March 2024 for 5% economic growth, analysts express skepticism.

According to Justin Yifu Lin, former Chief Economist at the World Bank, China could achieve an average growth rate of 5-6% annually until 2035, before it slows to 3-4% in the following decades. Lin suggests that China could attain high-income status by as early as 2025. However, he acknowledged that the aging demographic poses a considerable obstacle, a sentiment echoed by various economic studies.

Historically, countries with an aging population similar to China’s have seen significantly reduced growth rates. For instance, once the percentage of the elderly population in a country crosses 15%, the average growth rate has historically plummeted to 1.8% among high-income nations. Currently, 15.4% of China’s population is aged 65 and above, a figure that mirrors demographic trends from countries like Japan and Germany during their periods of economic stagnation.

Economic experts draw parallels between China’s current situation and those of Japan in the mid-1990s and Germany in the early 2000s, where similar demographic shifts led to a stark decline in GDP per capita growth. Such historical precedents suggest that China’s growth could decelerate to 3% by 2028, further distancing itself from achieving parity with the U.S.

Additionally, China’s per capita GDP in 2023 stood at $12,681, below the World Bank’s high-income benchmark of $13,845. With projections indicating a growth slowdown, meeting the rising high-income threshold, which is expected to reach $18,219 by 2035, appears increasingly daunting.

Compounding these economic pressures are external factors such as the devaluation of the yuan, shrinking workforce, and the reorientation of global industrial value chains away from China due to the Belt and Road Initiative and Western efforts to diversify supply chains. These elements threaten to exacerbate China’s struggle to escape the middle-income trap.

Analysts also predict potential monetary policy adjustments, including a possible reduction in Chinese interest rates to counteract deflationary pressures exacerbated by low fertility rates and weak domestic demand.

China may still reach high-income status in nominal terms, its broader economic challenges and demographic headwinds could significantly delay or even prevent it from overcoming the middle-income trap without substantial reforms.

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