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2019 OECD Economic Surveys: China 2019

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China’s growth continues to slow, but it is still high by international standards and contributes about a quarter of global growth. The growth model based on capital accumulation has led to misallocation of capital and excess capacity in a number of industries as well as falling investment efficiency, dictating a slower pace for investment. The reining in of shadow banking, an important source of financing for local infrastructure projects and for the private sector, weighs further on investment. Investment has been financed by debt, fuelled by interest subsidies and implicit guarantees for state-owned enterprises and other public entities. Slower growth implies lower enterprise profits and lower ability to service their debt, which has been accumulated primarily by state-owned enterprises and has reached unsustainable levels. Slowing growth and swiftly enacted tax cuts also imply lower fiscal resources to make growth more inclusive. In the medium term, productivity gains and more inclusive policies could sustain growth. Local protectionism increases transaction costs and hinders competition and restrictions on the hukou and the fragmented pension system limit labour mobility.

The Economic Survey of China assesses the country’s recent macroeconomic performance and proposes policy measures to promote higher-quality growth. Policy recommendations relate to how to integrate product and labour markets and enhance inclusiveness.

SPECIAL FEATURES: SINGLE PRODUCT AND LABOUR MARKET; REGIONAL POLICIES FOR EFFICIENCY AND EQUITY

 

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Key Policy Insights

China’s “New Era” started with strong growth and per capita GDP will likely double by 2020 relative to 2010 (Figure 1), thus making a large contribution to the expansion of the world economy. According to long-term growth scenarios, until around 2030, China would contribute more to world growth than OECD countries (Guillemette and Turner, 2018). In that year, China’s share of world output would peak at 27%. In the recent couple of years, a greater focus has been put on the quality of growth rather than its pace, with early signs of success. Efforts have been made to stimulate domestic consumption and to avoid the worsening of macroeconomic imbalances. In the recent period, downward pressure on the economy has increased, partly as a result of escalating trade tensions, prompting the government to swiftly introduce stimulus measures to support growth.

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