Rockefeller International is chaired by the writer.
The economy will need to expand at a rate of around 5 per cent in the next 10 years in order for China to be a mid-level developed country. The country's overall growth potential is estimated to be half that rate by underlying trends.
China's growth of 2.5 per cent has yet to be fully understood. China would not overtake America as the world's largest economy until 2060 if the US grows at 1.5 per cent with inflation and a stable exchange rate.
Growth is dependent on more workers using more capital and using it more efficiently. China has grown by injecting more capital into the economy at an unsustainable rate.
China is now a middle-income country, a stage when many economies begin to slow. The US has the highest per capita income of all the advanced economies. The working age population grew at an average rate of 1.2 per cent a year for the next 10 years, but only 19 grew at 2.5 per cent or faster. There were only two countries with a Shrinking workforce.
China is not a normal country. It would be the first large middle-income country to maintain 2.5 per cent gross domestic product growth. In China, this decline is on track to contract at an annual rate of nearly half a percent over the next 40 years. The debt is the next thing. After China reached its current income level, debt in the 19 countries that achieved 2.5 per cent growth averaged 170 per cent of GDP. None had as much debt as China.
After the 2008 crisis, China began pumping out credit to boost growth and its debts increased to 220 per cent of GDP. China's economy decelerated in the 2010s, but only from 10 per cent to 6 per cent, less dramatically than previous patterns would have predicted.
Total debt is up to 275 per cent of GDP, and much of it funded investment in the property bubble
Thanks to a tech sector boom and issuance of more debt, China avoided a deeper downturn. Much of the investment in the property bubble went to waste because of the high total debt.
Productivity growth fell by half last decade because of capital investment. Capital's efficiency fell. China has to invest $8 to generate $1 of GDP growth, twice as much as a decade ago, and the worst of any major economy.
2.5 percent growth will be an achievement. Basic productivity growth will not be enough to offset population decline. China needs capital growth rates close to those of the 2010s to hit 5 per cent GDP growth. The majority of the money went into infrastructure. Capital growth is likely to fall back to 2.5 percent given the size of the housing bust.
China can achieve whatever target the government sets, but consensus forecasts have fallen short of recognizing the pace of China's slowdown in recent years, when growth is likely to fall below 3 per cent The Chinese economy was expected to overtake the US in nominal terms by 2020.
Some economists claimed that China was the world's largest economy in terms of purchasing power parity, based on theoretical currency values. The theoreticians argued that the Chinese currency was overvalued and would appreciate against the dollar.
The Chinese economy is a third smaller than the US's in nominal terms. 2.5% is an optimistic forecast that plays down the risks to growth, including growing tensions between China and its major trade partners, growing government interference in the most productive private sector, and mounting concerns about the debt load
China's ambitions as an economic, diplomatic and military superpower are at stake. The world doesn't know that a less China is more likely.
China is fighting for strategic influence.
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