Opinion | How China can achieve high economic growth for another decade

The key to reviving economic prospects lies in addressing the paradox that China is a highly distorted economy yet with substantial growth potential

Growth can no longer come from traditional drivers such as exports or property development. Rather, it requires a restructuring of the state’s role in allocating resources

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Published: 9:15am, 31 Oct 2022

China’s 20th party congress will be remembered for confirming an unprecedented third term for Xi Jinping and packing the Standing Committee with his loyalists. Xi’s report to the congress covered all the traditional themes but the emphasis was on dealing with security in its varied aspects and accelerating technological progress.

But, despite a well-choreographed show of confidence, Beijing’s entreaties could not dispel widespread concerns about China’s growth prospects. The original target for this year of 5.5 per cent seemed reasonable, considering last year’s 8.1 per cent outcome.

But shrinking Western demand for China’s exports cannot be offset by accelerating infrastructure spending, given the weak financial position of local governments. Moreover, the collapse of China’s property market along with its zero-Covid policy mean that gross domestic product growth is expected to drop to around 3 per cent for this year, despite the recently announced third-quarter growth rate of 3.9 per cent.

Economists have offered a range of solutions, with many citing the need to promote consumption. Cyclical declines in consumption can benefit from stepped-up social programmes, but sustained economic growth depends on investment and productivity increases from efficiency improvements and technological progress.

Consumption does not drive growth, it is the other way around – increased consumption comes from more rapid growth. Given China’s already high investment levels, the challenge is to boost the productivity of investment, which has been declining steadily for nearly a decade.

Tech-oriented commentators point to innovation as the key to promoting growth and security. There is a strong correlation between a country’s innovation capacity and its per capita income. The richer a country, the greater its innovative capacity.