Since joining the WTO (World Trade Organisation) in 2001, China has enjoyed various tailwinds to economic growth, driving a multi-year investment expansion and world leading GDP growth rates. These positive drivers of investment are in some cases peaking and require China’s economy to rebalance towards consumption in order to support future growth. Amongst the key tailwinds have been:
- Export-led corporate investment – the combination of access to international markets, relatively low labour costs and supportive policy enabled China to develop its industrial base and effectively export disinflation globally for many years.
- Urbanisation – the huge population shift from the countryside to cities, with access to higher-paid and more productive jobs, as well as driving demand for housing investment was a key driver of GDP growth. China’s urbanisation rate has grown to around 62%1 and is slowing due to natural base effects and a declining pace of capital investment.
- Demographics – a young and increasingly productive population supported economic growth. The working-age population has peaked, although
productivity still has room to improve.
- Infrastructure investment – China invested heavily in its domestic infrastructure and despite drivers such as its shanty town rehabilitation programme, is limited in its ability to add substantially from here.
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