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China's growth could plunge to less than 1% by 2030, study says

March 28, 2013|By Shan Li
  • Hyundai workers assemble cars at a plant in Beijing. In a worst-case scenario, China's economic growth could drop to less than 1% a year by 2030, a U.S. Federal Reserve study says.
Hyundai workers assemble cars at a plant in Beijing. In a worst-case scenario,… (Tomohiro Ohsumi / Bloomberg )

China's zooming economy may feel the crunch in coming years as its workforce ages and productivity slips, potentially dragging down the global economy, according to a recent study.

In a worst-case scenario, economic growth in China could drop to less than 1% by 2030, according to a U.S. Federal Reserve study. That's after robust GDP growth that averaged 10% a year over the last decade.

Some slowdown is inevitable, the study said. The "rapid growth rates" that have boosted the fortunes of millions of people in China cannot be sustained forever, wrote Jane Haltmaier, a senior advisor at the Fed.

"The question is thus not whether the Chinese conomy will slow," she said, but "by when and by how much."

Haltmaier said that two factors affected GDP growth: a rise in employment and an uptick in productivity.

"China faces challenges in both these categories," she wrote.

Quiz: How much do you know about China's economy?

The United Nations has forecast that the population of working adults in China will start to decline before 2020 and nearly 25% of its workforce will be older than 60.

The country, which was once commonly known as the world's factory, has been losing some of its competitive edge in manufacturing as its workforce demands higher pay and its newly prosperous citizens demand more consumer goods, studies have said.

Thus, money that would have otherwise been invested in machines is thus diverted to consumer spending. There are also fewer workers to move out of less productive jobs in farming and into factory jobs.

Haltmaier said in the worst-case projection, employment growth would slow, investment would drop and manufacturing would decline as the services sector gained workers. In that case, GDP growth would drop to 5% by 2020 and to less than 1% by 2030.

"It should be noted that these are all in fact very reasonable assumptions," she wrote.

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Follow Shan Li on Twitter @ShanLi

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