China signals weaker growth but population pressures add downside risk

• China’s Fifth Plenum communique has signalled a likely weaker average growth target of 6.5% for the 13^th Five-Year Plan (2016-2020) – in line with a goal of doubling the size of China’s economy between 2010 and 2020.

• In some respects, the direction of the target (down from 7.0% between 2011 and 2015) is more significant than the figure – which appears almost implausibly high – although it points to further slowing in China’s economy. In part this reflects a reduction in the potential growth of China’s economy due to population trends. The latest UN projections point to a sharper fall in China’s working age population than previously thought – shaving around 0.7% a year from economic growth over the 2016-2020 period.

• Under NAB’s forecasts, China’s economic growth is expected to slow from 6.7% in 2016 to the Five-Year Plan target of 6.5% in 2017. With further demographic pressures, reaching the target growth rate over the period is likely to be challenging – meaning that the significance of the lower target in the 13th Plan may be largely symbolic.

• The looming working age population pressures may have contributed to the removal of China’s deeply unpopular One Child Policy – but this will not necessarily trigger a baby boom in China, with many demographers arguing that single child families have become a cultural norm. Even if the policy change resulted in a significant change in birth rates, it will take a long for this policy to impact the working age population – meaning the economic pressures of the falling workforce will persist in the short term.

For the full report, please see the attached document:

China Economic Update – November 2015 (PDF, 186KB)