China’s GDP growth may still be strong by global standards, but the annualized rate of 6 percent in the third quarter of 2019 is the lowest the country has recorded since 1992. In fact, China’s GDP growth has been slowing steadily since the first quarter of 2010, when it exceeded 12 percent year-on-year. This downward trend is riskier than many observers seem to realize.
In recent years, the prospect of slower Chinese growth has gained widespread acceptance, both within and outside China. A shrinking working-age population means that 8 percent growth is no longer essential for full employment, it is argued, so introducing more fiscal or monetary stimulus isn’t worth the risk. Instead, China’s policymakers should focus on improving the quality of growth through supply-side structural reforms – an objective that, most economists in China argue, may in fact be easier to achieve in a lower-growth environment.
This approach is misguided. While structural adjustment is crucial, slower economic growth is not a prerequisite for success. On the contrary, it would impede reform. Moreover, given that the complexity of China’s labor market impedes data collection, it is likely that China’s employment situation is not as strong as many believe.