Asia
World Bank Boosts China’s Forecast, Insists on Long-Term Reforms
The World Bank has updated its projections for China's economic performance, raising its growth forecast to 4.9% for 2024. This upward revision highlights the impact of policy easing measures and increased exports on the…
The World Bank has updated its projections for China's economic performance, raising its growth forecast to 4.9% for 2024. This upward revision highlights the impact of policy easing measures and increased exports on the world’s second-largest economy. However, the institution cautioned that significant long-term challenges, including a prolonged property market crisis and weak domestic demand, continue to weigh heavily on China’s recovery.
Despite the seemingly optimistic outlook, the World Bank underscored the urgency of substantial economic reforms, asserting that traditional stimulus approaches alone cannot propel China towards sustainable and robust growth.
Policy Easing and Exports Driving Growth
China’s GDP is now expected to grow by 4.9% in 2024, a slight increase from the 4.8% forecast published in June. This revision aligns closely with Beijing’s 5% GDP growth target, although achieving it will remain difficult given the broader challenges in the economy. Key factors behind this revised forecast include a series of policy adjustments aimed at providing liquidity and bolstering financial stability, coupled with stronger export performance in recent months.
However, while these measures have helped improve short-term recovery prospects, they do not address underlying economic vulnerabilities, such as low consumer sentiment and elevated property sector debt.
A Lingering Property Market Crisis
One of the largest headwinds to China’s economic recovery remains its property market crisis. The multiyear downturn in the sector has weighed heavily on investment and reduced local government revenues, which are largely derived from land sales.
According to the World Bank, a comprehensive turnaround in the Chinese property market is unlikely until late 2025. The organisation predicts slower growth rates beyond 2024, with GDP expected to rise by 4.5% in 2025, albeit higher than the earlier forecast of 4.1%. The enduring strain in the real estate sector is compounded by high debt levels among developers and weak homebuyer confidence.
Mara Warwick, the World Bank's country director for China, stressed that addressing the property sector's challenges must remain a priority for policymakers. She highlighted the importance of balancing short-term economic support with long-term structural reforms to secure a sustained recovery.
Stagnant Domestic Demand Weighing on Recovery
Weak domestic demand is another critical factor hampering China’s economic progress. The World Bank noted that subdued confidence among households and businesses could persist in the years ahead. Heightened economic anxieties due to diminishing job prospects and growing inequalities further contribute to this lack of confidence.
While China made strides in building a booming middle class over recent decades, around 55% of the population remains “economically insecure,” according to estimates from the World Bank. Without adequate social safety nets, many households refrain from spending or entrepreneurial risk-taking, thus stifling broader economic dynamism.
Warwick urged China to strengthen its social safety measures, including improvements in healthcare, education, and welfare systems. Such initiatives, the World Bank report argued, could not only alleviate financial anxieties but also create an enabling environment for greater social mobility and continued economic development.
Risks of Geopolitical Instability
Compounding these domestic challenges are rising geopolitical tensions, particularly between China and the United States. Analysts fear that a potential increase in tariffs, should Donald Trump return to the White House in 2025, could create further obstacles for Chinese exporters and undermine trade relationships.
Exports have been a key driver of China’s recent growth. However, dependence on foreign trade leaves the economy vulnerable to external shocks and policy shifts. Diversifying trade partnerships and reducing reliance on exports might help China mitigate these risks in the long term.
A Call for Structural Reforms
The World Bank report was clear in its message—structural reforms are critical for China to transition from its current fragility to a period of sustained recovery. “Conventional stimulus measures will not be sufficient to reinvigorate growth,” the report stated, urging Chinese authorities to focus on improving the productivity of workers and fostering inclusive economic opportunities.
Investments in quality education, healthcare, and welfare networks could pave the way for secure economic conditions, particularly among low-income and vulnerable middle-class households. This approach, the World Bank argued, would facilitate entrepreneurship, enhance human capital, and tackle longstanding structural inefficiencies.
Elitza Mileva, the World Bank’s lead economist for China, emphasised the importance of creating equal economic opportunities across different income groups. “Expanding opportunities for everyone to move up the economic ladder is important for achieving China’s goal of common prosperity,” she said.
Such reforms would align with China’s long-term aim of fostering “common prosperity”—an initiative aimed at reducing income disparities and ensuring economic benefits are widely shared. Inclusive policies could also serve to counter mounting socioeconomic inequalities within the country.
Outlook for 2025 and Beyond
While some progress has been made, the World Bank predicts that China’s GDP growth will continue to decelerate year-on-year, falling to 4.5% by 2025. While this slowdown reflects various economic headwinds, the institution reiterated that targeted policy reforms paired with innovation-driven growth would still allow China to remain a dominant player on the global economic stage.
Warwick concluded, “It is important for China to carefully balance short-term measures with long-term strategies. Strengthening local government finances and empowering a diverse workforce will be key to unlocking the country’s full growth potential.”
A Critical Juncture for Reform
China stands at a pivotal moment in its economic trajectory. While policy easing and stronger exports provide temporary relief, they do little to address the deeper challenges of an over-indebted property market, weak domestic demand, and sluggish social mobility. Long-term structural reforms—spanning education, health, and welfare—are vital if China is to achieve sustained growth and meet its goal of common prosperity.
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