President Xi Jinping Wants to Double the Size of Economy

China has the second-largest economy in the world and this fact once more underlines the strength of the local economy. President Xi Jinping aims to double the size of the economy by 2035. However, to reach this goal, the Chinese economy must grow annually by just 4.7% on average for the next 15 years. As a reminder, it grew by 6.1% last year and by 6.7% annually over the previous five years.

Despite formidable results, it won’t be easy to reach this goal. There are two main obstacles: demography and politics. It is worth noting that, every country that followed the high-savings, investment-led growth model that China adopted in the early 1990s has gone through three distinct stages.

Importantly, the first stage, characterized by heavy investment in badly-needed infrastructure, delivered many years of rapid but unbalanced growth. Interestingly, in the second stage, as each country sought to shift demand away from investment, typically with little success, growth remained fairly high, although now driven increasingly by non-productive investment. People should take into account that, when this happens, total debt in the economy must grow faster than a gross domestic product (GDP), so the debt burden rose.

Notably, in the third stage, the country either reached its debt capacity limits or a government took steps to prevent debt from rising further. It is worth mentioning that, either way, the economy was finally forced to rebalance away from investment and towards consumption amid slower even negative growth.

Importance of the World’s Largest Trade Agreement

Second-largest economy and risk factors

It is worth noting that China, at the moment, is clearly in the second stage. As a reminder, between 1980 and 2010, Chinese GDP doubled four times, but debt levels were low and rose slowly. Nevertheless, between 2010 and 2020 when GDP doubled again. China did so by tripling its total debt burden to $43 trillion. Currently,  it now stands officially at over 280% of GDP.

Let’s assume that the relationship between debt and growth does not change. In this case, China’s debt-to-GDP ratio will have to rise over 400% by 2035 if it is to double GDP again. However, there is a problem. Interestingly, this is a level that would be unprecedented in history.

The local economy has the potential to reach even better results. However, it won’t be easy to double the size of the economy by 2035. Nevertheless, Xi Jinping plans to reach this goal.