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Slowdown Inevitable for China’s ‘miracle’ Economy, Says Dallas Fed’s Economic Letter

For immediate release: October 22, 2015

DALLAS— Economic modeling points to slower growth ahead for China’s economy after decades of extraordinary gains, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.

In “Long View of China Suggests Inevitable Slowdown,” senior research economist Anton Cheremukhin analyzes the factors that contributed to China’s past growth during the rule of Mao Zedong to provide a benchmark for the future.

China has grown at an average annual rate of 9.4 percent since 1978, and economic reforms account for almost half of that growth, Cheremukhin finds.

“It’s difficult to maintain such expansion,” he writes. “China’s growth rate has recently slipped to the 7–8 percent range, prompting some analysts to ask whether the miracle has come to an end. The short answer may well be that China, while facing a robust future, is encountering the increasing constraints of an advanced economy.”

A model-based projection to 2050 shows China’s economy continuing to expand, but at a slower rate as the ability for reforms to improve productivity reaches its limits, and the country approaches the technological frontier.

“As China transitions further away from a centrally planned, state-run enterprise, it becomes subject to the same stumbling blocks as other market economies,” Cheremukhin writes. “Like its predecessors, Japan and the Asian Tigers, China is becoming more vulnerable to coordination failures of the free-market system, showing up as sudden stops, banking or financial crises.”

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Media contact:
Alexander Johnson
Federal Reserve Bank of Dallas
Phone: (214) 922-5288
Email: alexander.johnson@dal.frb.org