Insight Investment

We continue to have a bearish view for Chinese growth over the medium term relative to current market expectations. Our base case is that the potential growth rate of China falls over the next five years before plateauing at around 2.5% from 2028 onwards.

In this paper we highlight the key factors that underpin this belief and why we believe the risks are skewed to the downside.

Demographics are now one of the more serious problems. The consequences of the one-child policy, introduced decades ago, are now increasingly apparent and will remain a drag on growth for the foreseeable future. The population is now shrinking and, despite more recent policies to encourage larger families, the rate of decline is forecast to accelerate for decades ahead. Although this could potentially be countered by increasing migration, this appears an unlikely solution given the scale that would be needed.

Figure 1: China’s population is already in decline, and it’s going to get worse

Source: Macrobond. Data as at 31 December 2023, data for 2023 and beyond are forecasts.