China Economic Update: World Bank Highlights Need for Structural Reforms and Economic Mobility

The World Bank’s latest China Economic Update, titled “Reviving Demand, Regaining Momentum,” forecasts China’s growth at 4.9 percent in 2024 and 4.5 percent in 2025.

China’s economy has shown resilience despite facing multiple headwinds, achieving robust growth of 4.8 percent in the first three quarters of 2024. However, growth has moderated since the second quarter, reflecting subdued domestic demand and a prolonged downturn in the property sector. To address these challenges, the government has implemented policy measures aimed at balancing immediate support for domestic demand with the goal of maintaining financial stability.

The World Bank’s latest China Economic Update, titled “Reviving Demand, Regaining Momentum,” forecasts China’s growth at 4.9 percent in 2024 and 4.5 percent in 2025. While recent policy easing is expected to provide moderate support, challenges such as low consumer and business confidence, high debt levels, and an ageing population pose significant hurdles.

Structural Challenges and Reforms

Mara Warwick, World Bank Country Director for China, Mongolia, and Korea, emphasized the need for a balanced approach: “It is important to balance short-term support to growth with long-term structural reforms. Addressing challenges in the property sector, strengthening social safety nets, and improving local government finances will be essential to unlocking a sustained recovery. Clear communication of specific policy measures will be crucial to strengthening the confidence of markets and households.”

The report identifies critical structural constraints, including:

• Subdued Domestic Consumption: A persistent challenge despite policy efforts.
• High Debt Levels: Particularly among property developers and local governments.
• Demographic Pressures: An ageing population could further limit labor force growth and consumption.

Risks to the Outlook

China faces both domestic and global risks. Domestically, a deeper downturn in the property sector could further strain investment and local government revenues, while weakening labour markets might reduce consumption. Globally, uncertainties in trade and heightened geopolitical tensions could challenge export growth.

On the positive side, decisive fiscal spending and policy interventions, particularly in stabilizing the property sector, could lift growth above the current baseline. Recent guidance from policymakers signals a potential for more robust actions to address these challenges.

Unlocking Economic Mobility

The report also underscores the importance of enhancing economic mobility as a means to foster more sustainable and inclusive growth. Strengthening social mobility could help bridge rural-urban divides, reduce income inequality, and unlock domestic consumption—an essential pillar of China’s economic rebalancing.

Since the 2010s, China’s middle class has expanded significantly, reaching 32 percent of the population by 2021. However, approximately 55 percent of the population remains economically insecure, highlighting disparities in opportunity.

“Expanding opportunities for everyone to move up the economic ladder is important for achieving China’s goal of common prosperity,” said Elitza Mileva, World Bank Lead Economist for China. “Equal opportunities and greater social mobility will, in turn, support growth through higher human capital and greater entrepreneurship and risk-taking by economically secure households.”

Proposed Actions for Sustained Growth

To address both short- and long-term challenges, the World Bank recommends:

1. Stabilizing the Property Sector: Clear, decisive policies to address debt and investment issues.
2. Improving Social Safety Nets: Enhanced welfare measures to reduce economic insecurity.
3. Boosting Local Government Finances: Reforming fiscal systems to reduce reliance on land sales.
4. Promoting Labor Market Resilience: Policies to increase employment and workforce participation.
5. Enhancing Rural-Urban Integration: Investments in rural infrastructure and services to reduce disparities.

China’s economic outlook hinges on its ability to navigate these challenges while fostering inclusive growth. As the country looks to the future, the integration of structural reforms with effective policy stimulus will be pivotal in achieving a balanced, sustainable recovery..