China’s growth imbalances deepen

BOFIT’s latest forecast for China sees the Chinese economy growing by about 4 percent this year, before slowing to around 3½ percent in 2027 and 3 percent in 2028. Growth in coming years will continue to be restrained by weak domestic demand, China’s rapidly ageing population and an investment-driven growth model that delivers diminishing returns with only modest productivity gains.

Subdued domestic demand

Consumer confidence remains weak. The multi-year decline in housing prices, an uncertain labour market and a high household savings rate are all factors depressing consumption. The authorities’ limited support measures have not been enough to change household behaviour, and there are no signs of a broad-based, consumption-driven recovery.

“Weak domestic demand is a key problem for China’s economic growth,” notes BOFIT’s Eeva Kerola. “Yet economic policy continues to emphasise production, capital investment and technological self-sufficiency over measures to improve the material circumstances of households.”

The correction in the real estate sector continues and the authorities appear to be aiming for a controlling stabilisation of the sector. A shrinking population, large stocks of unsold or unfinished apartments and weak demand mean that the real estate sector is unlikely to emerge as a major engine of growth in coming years.

China’s weak domestic demand growth has been offset to some extent by increased exports, an important driver of Chinese growth at present. Export industries enjoy substantial government subsidies, provide the rest of the world with vast production capacity and play a major role in China’s rapidly advancing tech sector. BOFIT sees exports continuing to rise throughout the forecast period, albeit at a gradually slowing pace. China’s current account surplus is expected to remain large.

”The imbalance between China’s massive production capabilities and weak domestic demand is increasingly felt in other economies around the world,” reports Kerola. “China’s export success also exacerbates competitive pressures and increases trade tensions.”

While Chinese officials have announced new support measures for infrastructure, technology and targeted bank lending, the policy emphasis remains on increasing output and technological self-sufficiency. The use of broad-based stimulus measures is limited by rising public indebtedness and the difficult financial situation of local governments. Cheaper finance alone, however, is insufficient to resolve the problem of weak demand.

The latest BOFIT Forecast for China 2026–2028 is posted here: https://www.bofit.fi/en/forecasting/latest-forecast-for-china/

Further information:

Eeva Kerola, Senior Economist, eeva.kerola@bof.fi, +358 9 183 2512

Iikka Korhonen, Head of Research, iikka.korhonen@bof.fi, +358 9 183 2272