BOFIT Forecast for China 2014-2016 / 1

Economic growth in China has gradually slowed in recent years, falling below 8% p.a. over the past two years. China's resource-intense, investment-driven model is slowly being replaced with a more sustainable and environmentally responsible model based on private consumption. This implies lower economic growth ahead. We now expect economic growth to hover just around 7% this year and next year, and then slow to about 6% in 2016. Rising debt and worrisome financial market trends, however, could have destabilising effects. Thus, the situation calls for strong, focused reform policies to prevent problems from building up and creating a crisis that harms the entire Chinese economy. Progress in market reforms inherently alters the rules of the game, so participants in the Chinese economy need to act with the awareness that transition ushers in new types of risk.