China’s economy needs to double in size to meet Xi Jinping’s ambitious plans

(Image: Getty Images)

President Xi Jinping’s renewed pledge to grow China into a “medium-developed country” by 2035 implies a doubling in the size of the economy from 2020 levels, economists said, a challenging goal given the nation’s slower growth path.

Xi said in his report to the Communist Party congress on Sunday that per-capita gross domestic product will take a “new, giant leap” to reach the level of a medium-developed country by 2035.

While there isn’t a clear definition of what level of income would qualify a country as medium-developed, economists at UBS AG and Macquarie Group said it implies a doubling in GDP and per-capita income in the 15 years through 2035. That would require an annual average GDP growth rate of around 4.7% in the period, which would be difficult to achieve, they said.

“We think China’s potential growth may average 4-4.5% a year this decade and lower after 2030,” UBS’s Tao Wang and Ning Zhang wrote in a note Sunday.

Economists surveyed by Bloomberg predict GDP growth of just 3.3% this year due to stringent government curbs to contain Covid-19 outbreaks and a persistent property market slump. That would be well below the official target of around 5.5% set early in the year, and would be the first time Beijing misses its goal by such a big margin.

What Bloomberg Economics Says...

“The clearest takeaway from Xi Jinping’s party congress speech is that growth remains a top economic priority -- but there is an added emphasis on economic self-reliance and technology independence that likely reflects rising tension with the US.”

The per-capita “goal implies average growth of 4.7% between 2021-2035. We forecast an average of 4.4% for the period. Before the pandemic, we expected 4.8%.”

Chang Shu and David Qu

In 2020, Xi said it was “entirely possible” to double GDP or per capita income by 2035. In his speech on Sunday, Xi only mentioned per-capita GDP. The pledge was a repetition of an objective included in China’s 14th Five Year Plan released last year.

Macquarie analysts led by Larry Hu argued Xi’s inclusion of the goal into the opening report of the party congress suggests it will “carry much more weight” than previously and has become “a mandate” for the leaders.

“It’s not an easy one, given the structural headwinds underway such as the property down-trend, the aging population and the US-China tensions,” they wrote. “If top leaders take the target seriously, they might have to adopt a more pro-growth policy stance in the coming years.”

Morgan Stanley analysts including Robin Xing estimate the goal of becoming a medium-developed country means China’s per capita GDP will have to rise to $20,000 from $12,500 in 2021.