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The World Bank has lowered its 2024 projection for China’s GDP growth as the country grapples with a struggling property sector. The projected GDP growth for China in the next year has been revised to 4.4%, marking a decrease from the earlier forecast of 4.8% made by the bank in April 2023.
A report by the World Bank attributes this downgrade to enduring structural issues, increased debt burdens within the world’s second-largest economy, and weaknesses in its real estate sector.
In the latter half of the 2010s, China’s economy experienced annual growth rates of approximately 6% to 7%. However, in 2020, amid the Covid-19 pandemic, this growth decelerated to 2.2%. The country’s economy bounced back in 2021, with growth reaching 8.4%. Nevertheless, in 2022, it slowed once more to 3% due to the government’s stringent zero-Covid policies.
For this year, the Chinese government has projected a growth rate of 5%. The World Bank left its economic growth forecast for China unchanged at 5.1% for the remainder of 2023. The developing economies in East Asia and the Pacific (EAP) – besides China, also Cambodia, Indonesia, Malaysia, the Philippines, Thailand and Vietnam, among others – are also expected to grow 5% this year.
However, the institution has lowered its estimate for developing economies in EAP for next year. The region was previously projected to achieve an economic growth rate of 4.8% in 2024. However, this figure has been revised down to 4.5%.
“A growth shock originating in the region’s largest trading partners, China and the US, would impact EAP economies through bilateral trade and financial flows, including foreign direct investment,” said the World Bank.
World Bank warns about growing debt levels in EAP countries
As the World Bank revised its China GDP growth projections for 2024, it expressed concerns regarding a significant upsurge in government debt and a rapid escalation of corporate debt levels across the East Asia and Pacific region.
The World Bank’s report highlighted a substantial increase in corporate debt in China and Vietnam, exceeding 40 percentage points of GDP since 2010 and surpassing levels seen in advanced economies. Meanwhile, household debt has notably risen in China, Malaysia, and Thailand compared to other emerging markets.
“High government debt limits fiscal space, constraining public investment, and, by leading to higher interest rates, hurts private investment,” writes Aaditya Mattoo, Chief Economist of the East Asia and Pacific Region at the World Bank.
“High corporate debt also hurts private investment by leaving firms with less resources for new projects. The cost of servicing high household debt erodes disposable income and hurts consumption,” he adds.
Furthermore, the World Bank’s analysis concluded that when there is a 10-percentage-point rise in the ratio of general government debt to GDP, it corresponds to a decrease of 1.2 percentage points in investment growth. Similarly, a 10-percentage-point increase in the private debt-to-GDP ratio is linked to a 1.1 percentage-point reduction in investment growth, as indicated by their findings.
Additionally, the World Bank has stated that a 10-percentage-point surge in household debt would result in a 0.4 percentage-point reduction in consumption growth. Currently, household spending in the developing East Asia and Pacific region remains lower than pre-Covid-19 pandemic levels, according to the bank.
