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China’s growth has slowed markedly since the early 2010s. But how high will China’s growth be in the decades of the 2020s and 2030s? It is possible to build a scenario of very low potential growth in China (between 1.5% and 2%), which would have a major effect on global trade and global demand for commodities, according to strategists at Natixis. 

Key quotes

“The demographic outlook is well known: China will experience significant population ageing, with a significant decline in the working-age population.”

“The level of productivity is still low in China relative to OECD countries but the pace of catch-up is slow. There is certainly a corporate modernisation drive in China but on the other hand, there are many companies in difficulty (zombie firms) due to the sharp increase in debt and many of these companies are state-owned. In China, there is a lot of inefficient investment in construction and infrastructure, while productive investment has weakened.”

“If productivity gains remain at their current level in China, potential growth will average 3% over the period 2020-2040. But there are a number of factors weakening productivity gains: overindebted zombie firms, inefficient investments. If one wanted to be pessimistic, one could forecast a slowdown in productivity gains, from 4% today to 2.5-3%, leading to a potential growth of 1.5-2%, which would be lower than in the US over the same period of 2020-2040.”