Since China began to open up and reform its economy in 1978, GDP growth has averaged over 9 percent a year, and almost 800 million people have lifted themselves out of poverty. There have also been significant improvements in access to health, education, and other services over the same period.
China is now an upper-middle-income country. Although China has eradicated extreme poverty in 2020, an estimated 17.2 percent of the population lived on less than $6.85 a day (in 2017 PPP terms), the World Bank’s Upper-Middle-Income Country (UMIC) poverty line, in 2023.
China’s strong growth has been based on investment and export-oriented manufacturing, an approach that has largely reached its limits, and has led to economic, social, and environmental imbalances. Reducing these imbalances will require a shift from manufacturing to high value services, from investment to consumption, and from high to low carbon intensity.
In recent years, growth has moderated in the face of structural constraints, including declining labor force growth, diminishing returns to investment, and slowing productivity growth. The challenge going forward is to find new drivers of growth while addressing the social and environmental legacies of China’s previous development path. The role of the state also needs to continue to evolve, focusing on providing a clear, fair, and stable business environment, strengthening the regulatory system and the rule of law to further support the market system, as well as ensuring equitable access to public services to all citizens.
Global environmental problems cannot be solved without China’s engagement. Given its size, China is central to many regional and global development issues. Although not the main source of historical cumulative emissions, China today accounts for nearly a third of annual global carbon dioxide and 30 percent of the world’s greenhouse gas emissions – with per capita emissions now surpassing those of the European Union, and on par with the Organisation for Economic Co-operation and Development average – and its air and water pollution affects other countries. China’s growing economy is also an important source of global demand. Its economic rebalancing will create new opportunities for manufacturing exporters, though it may reduce demand for commodities over the medium-term.
China is a growing influence on other developing economies through trade, investment, and ideas. Many of the complex development challenges that China faces are relevant to other countries, including transitioning to a new growth model, rapid aging, building a cost-effective health system, and promoting a lower-carbon energy path.
Following moderate post-pandemic growth of 5.2 percent in 2023, growth is projected at 4.5 percent in 2024. Domestic demand in China has remained sluggish and contributed to low inflation, while the policy space for stimulus is constrained. Weak business confidence, in part driven by the property market downturn, continues to weigh on growth.
Over the medium term, China’s economy is expected to undergo a structural slowdown. Potential growth has been on a declining trend, reflecting adverse demographics, tepid productivity growth, and rising constraints to a debt-fueled, investment-driven growth model. Structural reforms are needed to reinvigorate the shift to more balanced high-quality growth.
Last updated: April 2024
