In the past four decades, the Chinese economy has grown at an unprecedented speed, transforming from a predominantly agricultural economy to an industrial powerhouse, and is now increasingly services oriented. However, strains from rapid structural changes have become clearer, including rapid demographic transition, urban-rural divides and rising environmental pressures. Therefore, while a trend decline in economic growth appears inevitable in the coming decades, different policy pathways could result in considerably different outcomes in terms of the quality of growth.
The ESCAP report, China’s economic transformation: Impacts on Asia and the Pacific, finds that in a scenario consistent with China’s national development plans and the 2030 Agenda for Sustainable Development, China will be able to sustain relatively high rates of economic growth and moreover, experience a decline in urban-rural income disparity and CO2 emissions.
Such structural changes in China are expected to have important ramifications for the Asia-Pacific region. China’s growing domestic market, evolving trade structure and expanding outbound investment are likely to present both opportunities and risks for other countries in the region. Regional cooperation will be important to maximize the opportunities and mitigate the risks, and to support the region’s implementation of the 2030 Agenda. Important policy questions include: How will China’s next phase of structural transformation affect production patterns in the region, including through relocation of certain industries? What kind of trade, investment and financial cooperation are needed to ensure a mutually beneficial path?
The ESCAP report finds that China’s embrace of an innovative, inclusive and sustainable growth path could bring significant benefits to its trading partners; compared to a baseline scenario, the net welfare gain for other countries in the Asia-Pacific region is estimated at $349 billion in 2030. While the simulation results are indicative, much will depend on how countries with relatively low labour costs, such as Cambodia and Nepal, could promote the development and accumulation of new capabilities, and become more integrated into global value chains with access to a wider range of expanding suppliers and markets. Pacific island countries may identify niches in service sectors that are growing with China’s rebalancing, including sustainable tourism. Resource-rich countries, which could face lower long-term demand as China improves economic efficiency, need to enhance industrial diversification, including by leveraging investment links to the Belt and Road Initiative. For existing technology exporters in the region, increased competition from China could result in loss in market share but also opportunities for further specialization and innovation. Overall, given the ongoing structural changes in China as well as the evolving global economic environment, countries in the region will need to continuously refine their policy responses, both domestically and through regional cooperation efforts.
Table of contents:
- Executive Summary
- Structural changes and reforms in China: paths toward a sustainable future
- Transmission channels and potential impacts of China's structural transition on Asia-Pacific economies
- Policies to capitalize on opportunities and mitigate risks