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Wednesday, November 04, 2020
Enormous Challenges Ahead for China to Double Its Economy in the Next 15 Years
ANBOUND

In his keynote speech at the opening ceremony of the third China International Import Expo held on November 4, President Xi Jinping said that starting from next year, China will embark on a new journey to fully build a modern socialist country and enter a new stage of development. This statement makes a clear "delimitation" of China's development, i.e. to complete the building of a moderately prosperous society in all respects during the 13th Five-Year Plan period, and to enter a new stage of modernized development from the 14th Five-Year Plan period onwards.

According to the content of the 5th plenary session of the 19th Central Committee of the Communist Party of China (CPC), the new stage of development should refer to the period from 2021 to 2035, where China will have to achieve the long-range goal of realizing socialist modernization, which is the first stage of the second centennial goal of building a modernized and powerful country. In the domestic market, there are several questions worth asking about the first stage of development: What are the major tasks to be accomplished in the next 15 years to achieve the core goals? What is the position of economic development in the process of promoting the transition to high-quality development? How do the development goals of the 14th Five-Year Plan relate to the long-term goals?

Researchers at ANBOUND believe that economic development will remain the focus on the 14th Five-Year Plan and the development plans for the next 15 years, and the country needs to reach new heights in terms of both scale and quality of economic development. In fact, when explaining the central government's proposal for the 14th Five-Year Plan, President Xi Jinping has already "disclosed" the priorities for future development and clearly raised the issue of establishing economic indicators.

During the process of soliciting opinions, some local governments and departments proposed a clear target for economic growth during the 14th Five-Year Plan period, Xi said, adding that "the goal of doubling the size of the economy or per capita income by 2035 was clearly put forward." After careful study and calculation, the drafting group concluded that China's economy has the potential to maintain long-term stable development, given its economic development capacity and conditions. It is "entirely possible" for China to meet the current standard for high-income countries by the end of the 14th Five-Year Plan period (i.e. by the end of 2025) and double the size of the economy or per capita income by 2035.

This means that China will have to achieve a doubling of the size of its economy in 2020 compared to 2010, which is also the goal of building a moderately prosperous society in all respects. On top of that, the size of China's economy will have to double again in 2035 compared to 2020, which means that China's GDP will have to quadruple in 25 years. As things stand, the first economic target should not be difficult to achieve. According to China's official estimates, China's GDP may reach RMB 100 trillion in 2020, compared to RMB 40.15 trillion in 2010 at current prices. Some analysts say China's economy needs to grow by 5.5% or 6% in the fourth quarter of this year for the country to reach the goal of a moderately prosperous society comprehensively.

However, it will be difficult to achieve a second doubling of the size of the economy. Given the official estimate of 2020 GDP of RMB 100 trillion, China's GDP would need to reach RMB 200 trillion by 2035. Simplified calculations suggest that annual GDP growth of the next 15 years will need to be around 4.7% to achieve another round of "doubling". It should be noted that it is easy to break down growth targets mathematically, but ANBOUND's researchers believe that achieving a second round of "doubling" under constraints over the next 15 years is likely to be difficult in practice.

First, the stage of China's economic development is different from that of the past. In the past five years, China's economy has slowed down from the "high-speed growth" in the past to the "medium- to high-speed growth". Over the next 15 years, China's economy will further slow to "medium-speed growth". About 10 years ago, ANBOUND put forward a "pyramid model" of China's long-term economic development, which suggested that China's economic growth rate would drop by one percentage point every 10 years for the next 30 years, from 7% to 6% to 5%, under a prudent strategy. This steady slowdown is premised on a relatively stable globalization environment. However, the current tide of anti-globalization and the worsening geopolitical environment has greatly damaged the environment for stable development, thus making it more difficult for China to maintain stable medium-speed growth over the next 15 years.

Second, China's economy will face increased pressure on environmental constraints and structural adjustment over the next 15 years. If the structural adjustment, including the macroeconomic structure and industrial structure, fails to meet the needs of economic transformation, the steady and sustained growth may face challenges. China has promised the world that its emissions will peak by 2030 and become carbon neutral by 2060. The former goal coincides with the "doubling" target in terms of time. According to ANBOUND's researchers, the pressure to cut carbon emissions is likely to impose strong external constraints on China's economic growth, affecting its 2035 economic target.

Third, China's economic development in the next 15 years will face the severe challenge of aging. China's economic future faces several constraints, including geopolitical and geo-economic factors, but the biggest constraint may come from the country's aging population. China is entering a phase of rapid aging, and past estimates by ANBOUND's researchers showing that there will be about 420 million elderly population in the country by 2035. Such a large elderly population will be a huge drag on China's economic development. Judging from the deficiencies in China's response to aging, a large amount of economic resources will be invested in the future to make up for the present deficiencies. As can be inferred from the example of Japan, it will be difficult for China, which is in the midst of a super-aging population, to sustain considerable economic growth.

In addition, China's medium - and long-term economic growth is constrained by energy, human resources, scientific and technological development, effective education, medical and health care, and many other factors. What will a new economy with a size of RMB 200 trillion need? Can the future world resource system carry and support it? These are all realistic problems that would be encountered.

Final analysis conclusion:

Under a pattern dominated by "internal circulation" and mutually reinforced by "dual circulation", China is seeking to double its economy size in the next 15 years, which shows China's confidence and expectation for future development. However, under the new pattern of globalization in the future, it is necessary to objectively recognize the constraints and challenges that China will face in its future economic development, to fully assess the difficulty of achieving the goals, and to retain flexibility for the development goals.

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