China aims for sub-5% annual growth rate in long-term vision

President Xi Jinping is signalling his long-term vision for the Chinese economy likely requires it to expand at an average pace of less than 5 per cent a year, well below the historical trend over the past 30 years.

Mr Xi told the Communist Party’s Central Committee last week the economy could double in size by 2035, according to state media. That would imply an annual average growth rate of 4.7 per cent to 5 per cent, according to a range of forecasts from economists.

The Chinese leader was addressing the party’s top decision makers at a closed-door meeting in which they laid out plans for the economy over the next five and 15 years. Officials didn’t disclose a numerical growth goal, although the economic planning agency has said it’s working on five-year targets. Reuters reported that officials are considering a goal of around 5 per cent growth a year.

Although we view growth of 5 per cent to 6 per cent over 2021-2025 as likely, growth above 5 per cent over 2026-2035 appears quite challenging

Nomura Holdings

Ding Shuang, chief economist for Greater China at Standard Chartered in Hong Kong, estimates an average growth of 4.8 per cent over the next 15 years, based on the assumption that the economy will surge 8 per cent in 2021 from this year’s low base, then moderate to an average of 4.5 per cent during 2022 to 2035.

That outlook is consistent with the expected “gradual decline in China’s potential growth”, he said. “While this does not appear to be a binding target, such broad guidance is important for business decision making and policy making.”

China is likely to announce more specific targets when the plan is officially adopted by the national parliament, expected in March next year.

When the last five-year plan was released in 2015, Mr Xi’s speech to the Central Committee disclosed a growth goal of at least 6.5 per cent over the period. This year, the only hints economists have are his broad ambition of doubling gross domestic product in 15 years and the plan’s mention of raising GDP per capita to the level of a “medium developed country”.

With China’s potential growth gradually slowing as the economy matures, growth of 4.7 per cent to 5 per cent may still be too ambitious. The government’s current aim is to double the size of GDP and income by 2020 from the level in 2010, but doubling it again from a bigger base may be harder to achieve.

The nation also faces an ageing population, rising wages and a rapid increase in debt, all of which could hurt its growth potential. That’s not even counting a more hostile global environment as rivals like the US seek to curb China’s trade and technology ambitions.

“It is extremely difficult to project growth 15 years out and, although we view growth of 5 per cent to 6 per cent over 2021-2025 as likely, growth above 5 per cent over 2026-2035 appears quite challenging,” Nomura Holdings economists wrote in a note.

To overcome some of those challenges, the Communist Party is promising to build the nation into a technological powerhouse and focus on quality growth over speed. Key to that objective is developing a robust domestic market and becoming self-reliant in technology, especially in chips, the building blocks for innovations from artificial intelligence to fifth-generation networking and autonomous vehicles.