China’s Economic Hurdles: Falling Short of High-Income Status

China faces significant economic challenges as it diverges from the World Bank’s high-income country threshold.

In 2023, its per capita gross national income (GNI) slightly fell to $12,597, marking the first decline in dollar terms in nearly 30 years.

This drop places China 9% below the revised high-income category minimum of $13,846, signaling a setback in its economic progress.

Contributing factors include a weakening yuan, the lingering effects of the zero-COVID policy, and a prolonged real estate slump.

Despite a 4.7% increase in GNI in yuan terms, it marks a deceleration from the previous year’s growth.

The job market’s slow recovery further complicates the situation, with unemployment claims reaching a peak not seen since 2012.

Additionally, the yuan’s depreciation, influenced by U.S. interest rate hikes and domestic economic weaknesses, exacerbates the GNI’s downturn.

Expectations for China‘s rapid economic recovery in 2023 have not been met, leading to concerns about its role as a global growth driver.

The economy faces challenges, including a property crisis and high youth unemployment, with growth expected around 5%.

This slowdown, along with predictions of long-term stagnation, raises fears of China entering the “Middle Income Trap.”

Historically, China has seen remarkable growth, averaging a 10.5% annual expansion from 1991 to 2011.

However, growth has slowed under Xi Jinping‘s leadership, with predictions of further deceleration due to real estate adjustments and demographic challenges.

China’s Economic Outlook

The IMF forecasts a gradual decline to 3.5% growth by 2028, influenced by productivity issues and an aging population.

China’s economic challenges stem from structural issues, including post-boom effects and policy decisions like COVID-19 measures and crackdowns.

These factors, combined with a demographic crisis marked by a record-low fertility rate and the first population decline since 1961, indicate a daunting economic future.

Despite challenges, China’s leadership commits to supporting the economy. However, the effectiveness of these measures against structural issues remains uncertain.

Without significant policy reforms, China risks long-term stagnation, reminiscent of Japan’s “lost decades.”