China's GDP growth could slump to an average of 1.7% by the 2030s if the country implements limited reforms that would lead to further debt accumulation, according to a report by the World Bank Group and the Development Research Center of the State Council.
"After more than three decades of average annual growth close to 10%, China's economy is transitioning to a 'new normal' of slower but more balanced and sustainable growth," the report said. It noted that China's old growth engines, such as a growing labor force and export industry, are "running out of steam."
As a result, China's economic expansion could weaken to an average of 4.0% in 2021-2030, before dropping further to 1.7% in the succeeding decade if the government adopts limited reforms.
The report defined limited reforms as a scenario in which a high level of accumulated debt further drags growth. "It captures the risk of a substantial and long-lasting slowdown in growth stemming from China's debt overhang and assumes that the negative impact of a high debt burden on growth can be considerable, even in the absence of a financial crisis," the study said.
Meanwhile, China's GDP growth could slow to 4.1% in 2040 under comprehensive reforms and to 2.9% if moderate improvements were implemented.
To accelerate growth, the government must depend less on investments and more on consumption, as well as adopt a reform agenda that focuses on innovation and productivity, according to the report.
