A warning has emerged from within China that the country's annual potential growth rate could fall to half its current level over the next decade without market reforms.
According to the South China Morning Post on Sunday, Zhou Tianyong, director of the National Economic Engineering Research Institute at Dongbei University of Finance and Economics and former deputy director of the International Strategy Research Institute at the Central Party School, stated that "China's long-term growth trajectory depends on the introduction of market reforms." He added, "Without relevant measures, the annual potential growth rate will be only 2.5% during the 15th Five-Year Plan (2026-2030) and the following decade."
Zhou noted that "a clear rebound in total factor productivity and expansion of household consumption demand are necessary." He added that "China's economic growth potential remains enormous if production factors and surplus resources such as land and housing are activated, residents' incomes increase, and demand expands among rural residents, urban migrants, and urban low-income and middle-class groups."
The 2.5% figure is merely half of China's GDP growth target of around 5% last year. It also falls significantly short of the 4.17% annual average needed to achieve middle-income country status by 2035. Chinese President Xi Jinping had previously announced a goal to double per capita GDP by 2035 compared to 2020 levels to realize "socialist modernization."
This warning draws attention as local governments have successively lowered their growth targets. As of the 5th of this month, 30 of China's 31 provinces, municipalities, and autonomous regions had disclosed their growth targets, with 20 either lowering their targets from the previous year or reducing the lower bound of their target ranges.
Growth targets presented by local governments at regional legislative sessions held in January and February each year serve as key reference materials for the central government's growth target announced at the National People's Congress in March. Accordingly, expectations are growing that the central government will also lower its annual economic growth rate from 5%, where it has been set for three consecutive years, to around 4.5%. Bloomberg Economics predicted that Chinese authorities will take a pragmatic stance facing stronger structural headwinds including population decline and shifting growth drivers, stating "Given signals of slowing growth momentum and limited additional stimulus measures, this year's growth will struggle to exceed 5% and will likely be around 4.5%."