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Research Summary

  • Economics

China Races Against Time as Demographic Drag Looms

Senior Economist—Asia
Economist—Asia-Pacific
May 29, 2013

The next decade will be critical for China as it seeks to further modernize its economy before demographic headwinds kick in.

Our long-term forecast suggests that a sharp economic growth deceleration predicted by some pundits is unlikely—it would require an unrealistic collapse in capex and/or a nosedive in productivity. But with cheap labor supply drying up and productivity gains moderating, failure to implement appropriate reforms may push China into a so-called middle-income trap.

The good news, however, is that China’s new leadership appears conscious of these issues, although concerns persist about various institutional constraints that hinder optimal resource allocation.

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