China's economic growth is expected to decelerate to an average annual rate of 4.6% over the next 10 years, but the pace of expansion could come in much weaker if trade relations with the U.S. further deteriorate, according to a new report from S&P Global Ratings.
The rating agency said the potential slowdown is "inescapable," attributing it to what it called "natural and mostly healthy" structural factors, including China's shrinking labor force, limited space for further capital accumulation amid deleveraging efforts, and economic re-balancing to services from manufacturing.
The projected average growth level from 2020 to 2030 assumes a stalemate in the U.S.-China trade dispute and no more major escalation of tensions, S&P Global Ratings said.
But in a downside scenario of a sustained escalation in the trade conflict, China's average real GDP growth could even fall to 3.7% over the next decade, as trade tensions would force the country to become more self-reliant, impeding productivity growth, the rating agency added.
"Productivity will set the pace of China's slowdown and will depend on the ability to acquire, create, and deploy technology. Reform unleashing markets will be key," the rating agency said in its report.
In an upside scenario wherein China and the U.S. ease tensions and reach a comprehensive trade deal in the medium term, Chinese economic growth is projected to average 5.4% through 2030.
"If China tolerates the slower growth resulting from structural factors and refrains from excessive stimulus, then the economy's glide path can remain smooth," said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings.
The Trump administration recently announced plans to impose new tariffs on a combined $550 billion of Chinese goods in retaliation to additional duties to be imposed by China on about $75 billion of U.S. imports.