How severe is China’s growth slowdown (in historical perspective)?

There are many alarmist articles on China’s growth slowdown (for a nice specimen, see here). The slowdown is real. The average annual growth of China over the past three years was slightly below 5% per capita; ten years ago, the three-year average was about 7%, and then ten years before that the three-year average was 10%. (These are all per capita growth rates).

But is 5% growth bad? How bad? In 2024 (the last year with detailed growth rates from the IMF/World Bank database), the average growth rate, by country, in the world was 2%. Only one country out of each ten (i.e. ten percent of countries) had growth rates above 4.7%. So Chinese growth rates, now at the time of the slowdown, are still among the top decile of all countries’ annual growth rates.

The Chinese slowdown simply means that instead of growing at the highest, or the second or third highest, rate in the world for some twenty years non-stop (except for countries enjoying temporary high growth thanks to resource windfalls or recovery from war), it has now “gone down” to be among the top decile of countries by growth rates. Obviously, it is a slowdown that most countries –90 percent of them, to be exact—would wish they could experience. Among big countries, it is only India that has recently been doing better than China, with, for example, the past three years’ average growth rate of about 6% per capita.

Chinese slowdown is also “normal” and expected because the country has become richer, has in many cases approached the technological frontier and its growth may be expected (perhaps not yet, but in a generation or two) to depend essentially on the speed of technological progress on the frontier.

It thus makes sense to ask the following question. Let us collect all historical data (going back to 1950 and up to 2024) of GDP per capita levels and GDP per capita growth rates of all the countries that are in the World Bank/IMF data base, and compare the profile of global growth to that of China. This is what the figure below shows. There are about 11,000 data points of GDP per capita (in real; PPP dollars) on the horizontal axis, and the same number of GDP per capita growth rates for 187 countries. The thick blue line gives the average non-parametrically estimated growth rates of the economies at a given level of GDP per capita. As can be easily seen, that growth rate increases from hardly above 0 for the poorest country/years to almost 2.5% for the country/years that are at about $PPP 10,000. Today, such countries (where in principle the growth rate should peak) are Tunisia and Ecuador; but in 1994, they were Lebanon, Romania and Surinam; and in 1964, they were Greece, Gabon and Spain, and so forth (for any year between 1950 and 2024). After that peak, the world “expected” growth path declines and at the level of country/years with GDP per capita of $50,000 and above, the expected growth rate becomes 1.5%.

Where is China in this story? Its own growth part is shown by the red line (again, using a non-parametric regression). Clearly China had a tremendous acceleration of growth compared to the typical world growth path, but also a much sharper deceleration. (The slopes of both the upward and the downward portions of the Chinese inverted U curve are much sharper than for the same curve for the world.) But despite a sharp deceleration, China’s growth today is still much higher than the growth of a typical country at China’s income level. There is a gap between the red and the blue lines: on average, we would—following the world experience—expect China to grow at 2%, but it is growing at 4.5%.

So, yes: Chinese growth is slowing down faster than the typical world growth would slow, but China is still growing at significantly higher rates than we would expect, basing ourselves on the global data covering the past 75 years.

How does it compare with Japan’s experience that many people are arguing China is heading towards? What we notice in figure below is that Japan too has had much higher growth rates during its expansion than one would expect based on global experience. When Japan’s GDP per capita was around $PPP 10,000, it grew at almost 6% annually vs. (as we have seen) about 2.5% for the world. But then, from about $PPP 30,000 (see the dashed line in the graph) Japan’s deceleration was remarkably sharp so much so that eventually, and very briefly, Japan’s growth performance became inferior to the average world performance at that income level, Since then Japan seems to have fully gone back to the “world line”; in other words, its performance is neither exceptionally good, nor exceptionally bad, but average for a country at Japan’s income level.

The question is, Will China’s deceleration be as fast as Japan’s? Could the graph for China drop so much and fast that by the time China reaches about $PPP 30,000 it hits the blue line, and Chinese growth becomes neither more nor less remarkable than the usual growth rate at that income level? This is, of course, a crucial question that nobody can answer now. But if one were simply to take a thick marker and draw the red line by continuing it the way that it seems to go now (i.e. keeping the same slope), China would hit the blue line around a GDP per capita of $PPP 32,000—income level that is about ½ higher than today’s. That does not mean that it will stop growing. It would still grow at the rate of approximately 2% per capita per annum but that rate would be neither higher nor lower than that of countries at the same income level. In that (hypothetical) case, the China’s exceptionalism, would be over.