Exports support China’s economic growth this year

BOFIT’s own analysis suggests that China’s actual GDP growth was somewhat lower than official figures and that growth will continue to slow throughout the forecast period.

We expect China’s actual economic growth, supported by exports, to stay around 4 percent this year. Growth should then decelerate to around 3½ percent in 2027 and about 3 percent in 2028, with export momentum waning and no meaningful rebound expected in domestic demand.

Growth sensitive to changes in global demand

Notes BOFIT senior economist Riikka Nuutilainen: ”China, as the world’s largest oil importer, has insulated itself relatively well against global energy shocks. Nevertheless, a slowdown in the global economy would hit China’s demand and economic growth.”

Chinese economic policy continues to emphasise exports and strong industrial policy. The latest five-year plan stresses greater self-sufficiency in strategically important industries and high-tech fields. The yuan’s relative weakness has supported exports. While the world benefits from China’s production of inexpensive goods and technological advancements, global competition with Chinese producers has intensified.

The weakening employment outlook and prolonged downturn in the Chinese real estate market have depressed domestic demand and forced households to increase savings. China produces significantly more than it consumes, and economic imbalances continue to grow. Public sector deficits remain very large.

”We expect China to post large trade surpluses over the coming three years,” reports Nuutilainen. “Some of China’s competitiveness gains have been achieved through such competition-distorting measures as government subsidies to domestic firms. The sense of unfair advantage strains relations between China and its trading partners.”

Clouds of uncertainty

China has failed to implement reforms sufficient to boost domestic demand or reduce economic risk. As a result, trends in the domestic economy are fraught with large uncertainty. The lack of reliable statistical data and censorship of economic discussions further complicates assessment of actual economic conditions and forecasting efforts. External uncertainties have also increased with rising geopolitical tensions.

The full text of the forecast is posted here.