China Economic Update: 20 June 2016
China’s longer term growth prospects are dependent on a range of economic reforms – critical to supporting the broad based productivity growth necessary to offset the negative demographic effects from the country’s declining working aged population.
Short term volatility risks derailing China’s critical reforms – risking weakness longer term
- China’s longer term growth prospects are dependent on a range of economic reforms – critical to supporting the broad based productivity growth necessary to offset the negative demographic effects from the country’s declining working aged population.China’s progress on the reform agenda unveiled at 2013’s Third Plenum has been at best mixed – with some measures implemented, some partially introduced or delayed and others reversed in the face of economic volatility. Moody’s argue that Chinese authorities are favouring growth and stability ahead of reform at present.
- A shrinking workforce and rising older age dependency ratio increases the necessity to boost labour productivity – a significant challenge in a period of generally low productivity growth globally. Simply maintaining existing productivity would see China’s economic growth slow considerably in coming years, as the declining working age population contracts from growth.
- Increasing labour productivity is a complex problem, as it is impacted by a wide range of factors. We argue that the focus should be on building the quality and mobility of China’s workforce (via education and reform to the household registration system).
- In 2013 we expressed cautious optimism towards China’s broad reform agenda. The slow pace of reform is a major concern, given the increasing demographic pressure and the urgent need to increase labour productivity. Failure to boost productivity will result in medium term economic growth slowing considerably and China’s economy remaining constrained at middle income levels.
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About the Author
Gerard has over a decade of experience as a professional economist, currently specialising in international economic research. He is responsible for monitoring and forecasting trends in emerging Asian economies, with a particular emphasis on China. He is also a member of the bank’s commodities research team, focusing on trends in iron ore and coal markets.
Gerard joined NAB in 2005, and previously focused on risk analysis across a range of industry sectors in Australia and abroad. He had particular expertise in areas such as Mining, Manufacturing, Healthcare and Retail, including the development of research into online retail sales. Prior to joining NAB, he was an economist with the Australian Bureau of Agricultural and Resource Economics, focusing on commodities and energy research.
He holds Bachelors degrees in Economics (with Honours) and Commerce from the Australian National University.
