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China 2025: 10 Predictions for the Next 10 Years (by Morningstar)
Daniel Rohr, Sector Director, 07 March 2016
 
China's faltering economy has sent shivers through global markets in 2016, and for good reason. As the world's second-largest economy and leading source of global growth for the past decade, China matters more than ever. Guessing what comes next for China and the implications for the rest of the world are exercises fraught with uncertainty. We believe China's arrival at two major and near-certain, inflection points alleviates some of that uncertainty. First is China's economic rebalancing. As we've argued for the past five years, excess capacity across broad swathes of the economy and mounting bad debt will force a transition to consumption-led growth. The second inflection point concerns China's demographics. The country's working-age population will shrink by 43 million by 2030, by which time China will have more seniors than the EU, Japan, and the U.S. combined. These two inflection points shape much of our long-term outlook, which we've summarized here with 10 predictions for the next 10 years.
 
First, we expect China's GDP growth to slow to less than half the pace of the past 10 years. The historical experience of economies making the transition from investment-led to consumption-led growth shapes much of this outlook. In every case, the rebalancing economy experiences not only a sharp deceleration in investment growth, but also weaker consumption growth. Historical precedent also suggests magnitude matters; the bigger the boom, the weaker the ensuing GDP growth. Worryingly, China's boom has been greater in magnitude and duration than anything that has come before. In our view, consensus expectations, while moderated, remain too optimistic in the 5%-6% range. We expect GDP growth to average between 1.5% and 4.5% in the next 10 years. Attaining the upper end of that range would require major reforms to unleash household consumption, reallocate credit from the state to private sector, and boost productivity at China's bloated state-owned enterprises.
 
Second, we believe reforms are likely to disappoint, making even 4.5% GDP growth a challenge. Our skepticism is rooted in the inherent conflict between key reforms and Beijing's two overriding political aims: control and stability. For example, we think it is unlikely Beijing will allow the major defaults that would be necessary to eliminate state-owned enterprises' preferential credit access and reallocate credit to more productive borrowers. Doing so would risk massive social disruptions and would diminish the state's control over capital allocation. For similar reasons, we doubt meaningful interest rate liberalization is a near term prospect, as many state-owned borrowers would be unable to afford market-set interest rates. Consequently, the implicit wealth transfer from household savers to state-owned borrowers is likely to persist, hindering consumption growth.
 
Third, stimulus is likely to prove ineffective at best. Questions of whether Beijing will go back to its old growth playbook overlook evidence that the government has been trying to stimulate the economy since November 2014. Multiple interest rate cuts and reductions to the portion of deposits banks must hold in reserve haven't delivered the sort of boost they did in prior years. This is partly because of borrower unwillingness to invest amid a deteriorating economic outlook, a reticence reflected in all-time low readings on the central bank's loan demand survey. It's also because of capital outflows from China, which we estimate at roughly $640 billion in 2015. The case against stimulus extends beyond doubts over its efficacy. Many of the problems China is dealing with today, from excess capacity to bad debt to falling prices, are the consequences of too much stimulus. At this point, stimulus is a shot of whiskey to cure a hangover.
 
Fourth, despite looser family planning laws, we expect births to fall by 25 million versus the past 10 years. The female population of child-bearing age will fall by 50 million by 2025, with 41 million of that decline concentrated in women with the highest fertility rates: those ages 20-29. Assuming no change in age-specific fertility rates, births would decline by 30% by 2025. A comparison of Chinese fertility rates versus those of neighboring countries at similar points in their economic development suggest economic and cultural factors account for China's low birth rate, not government policy.
Fifth, China's urban population growth will fall by nearly half. Over the past 10 years, as China urbanized roughly 200 million people, it traversed the "steep" portion of the urbanization-to-income curve we observe globally. Looking ahead, that curve flattens considerably, with lower urbanization growth for each percentage point of GDP growth. Moreover, China will also be moving along that curve at a slower pace because of weaker GDP growth. We forecast China will urbanize 115 million over the next 10 years. While this would mark a significant deceleration, it would nonetheless see China add the equivalent of Japan's entire urban population.
 
Sixth, we believe the RMB will fall by 20% against the U.S. dollar. Defending the de facto dollar peg amid massive capital outflows has cost the PBOC billions in foreign exchange. Unless the underlying causes of capital flight are addressed, including expectations of falling interest rates and a weaker RMB, we see little reason for those outflows to end. By devaluing the RMB to a level approximating market expectations, Beijing would reduce a major incentive for capital to leave China. A fair value estimate that draws on the global relationship between market exchange rates and purchasing power parity exchange rates across income levels suggests that level is roughly 8 renminbi per U.S. dollar.
 
Seventh, we expect China's economic rebalancing to trigger another "Dark Age" for industrial commodities such as copper, coal, and steel. China is the dominant consumer of industrial commodities and has accounted for the overwhelming majority of global demand growth in the past decade. We forecast China's industrial commodity demand to decline in the next several years as investment growth wanes. As a result, demand growth globally is likely to expand far slower than global GDP. Historically, sub-GDP demand growth has been associated with falling real commodities prices, a situation that prevailed in the decades prior to China's investment boom.
 
Eighth, we doubt India will fill China's shoes as far as commodity demand is concerned. India is the only country that can match China's demographic heft. The fact that Indian GDP per capita now approximates that of Chinese GDP per capita 10 years ago has led many to suggest that Indian commodity demand is on the verge of take-off. This line of thinking confuses the origins of China's commodity demand growth. It wasn't so much China's level of development a decade ago, nor the economic growth it registered in subsequent years that led to China's insatiable appetite for commodities. Rather, it was the heavy investment orientation of the Chinese economy. Unless India duplicates China's growth model, India will not deliver the same boost to global commodity demand. Because of India's pluralistic political structure and because New Delhi lacks Beijing's tools to shape economywide capital allocation, we doubt India's growth pattern is likely to follow that of China.
 
Ninth, we believe China's health spending will more than double. We expect healthcare outlays to grow far faster than GDP for a couple broad reasons. First is the tendency of healthcare to claim a larger share of total spending as incomes rise. This trend is evident globally and within China itself. Second is the fact that China is aging at an incredible pace. China's population 65 and older will be 50% larger by 2025 and 130% larger by 2030, by which time it will have more seniors than the EU, U.S., and Japan combined. China will be an "old" country by middle income standards and we expect it to spend proportionately more on healthcare than the typical middle income country.
 
Tenth, despite many high profile predictions that China will overtake the United States as the world's largest economy in the relatively near future, we don't see that happening in the next decade. At prevailing exchange rates and assuming the U.S. musters 2.2% annual GDP growth (in line with the IMF's forecast) while China grows at 4.5% (the upper end of our 10-year forecast), the U.S. economy would be roughly 30% larger than China's by 2025.
 
中國2025：10大預測，在未來10年（晨星）
丹尼爾·羅爾，部門主任，2016年3月7日
中國的步履蹣跚的經濟經歷了全球市場在2016年發涼，並有很好的理由。作為世界第二大經濟體，在過去十年全球經濟增長的主要來源，中國重要的比以往更加。猜測隨之而來的對中國和世界其他地區的影響是演習充滿了不確定性。我們認為，中國的到來在兩個主要和近乎肯定的，拐點減輕一些不確定性。首先是中國的經濟再平衡。正如我們主張在過去的五年中，容量在整個經濟和安裝壞賬的廣泛大片過剩將迫使消費主導型增長的轉變。第二個拐點事關中國的人口統計數據。該國的勞動年齡人口將萎縮43億。2030年，由當時中國將擁有比歐盟，日本和美國的總和還要多的老年人。這兩個拐點塑造我們的很多長期前景，我們已經與10預測在未來10年這裡總結的。
首先，我們預計中國的GDP增長將放緩至近10年來的不到一半的步伐。經濟實現從投資拉動向消費拉動型增長轉變的歷史經驗塑造了很多這樣的前景。在任何情況下，重新平衡經濟的經驗不僅在投資增長急劇減速，而且還較弱的消費增長。歷史上的先例也表明大小事宜;繁榮越大，隨之而來的GDP增長較弱。令人擔憂的是，中國的熱潮已經在更大的規模和持續時間比什麼都已經來過了。在我們看來，市場預期，同時放緩，保持在5％-6％的範圍過於樂觀。我們預計在未來10年GDP增​​速至1.5％和4.5％之間，平均水平。實現這一範圍的上限將需要進行重大改革，以釋放家庭消費，從國有到私營部門重新分配信貸，在中國的臃腫的國有企業提高生產效率。
第二，我們認為，改革很可能會令人失望，使得即使是4.5％的GDP增長是一個挑戰。我們懷疑是植根於改​​革的關鍵和北京的兩家壓倒一切的政治目標之間的內在衝突：控制和穩定。例如，我們認為這是不可能北京將允許各大違約，這將是必要的，以消除國有企業的優惠信貸准入和重新分配信貸更富有成效的借款人。否則，將有可能大規模社會混亂，並會削弱國家對資本分配控制。出於同樣的原因，我們懷疑有意義的利率市場化是一個短期內的前景，因為許多國有企業借款人將無法負擔市場設定的利率。因此，從家庭儲蓄的隱性財富轉移到國有企業的借款人可能會持續，阻礙了消費的增長。
第三，刺激政策可能充其量證明是無效的。北京是否會回到其舊的發展路線問題忽視的證據表明，政府一直試圖以刺激經濟自2014年11月多降息和降低到存款銀行必須儲備持有的部分還沒有交付排序提升他們前幾年一樣。這部分是因為借款人不願意在一片經濟前景惡化的投資，一個沉默反映在所有時間對央行的貸款需求調查低讀數。這是因為來自中國的資本外流，這是我們估計在大致640個十億$在2015年的情況下，對刺激超出了它的功效表示懷疑的也。許多中國正在處理的今天，從產能過剩的壞賬價格下跌的問題，是太刺激的後果。在這一點上，刺激是威士忌的一拍治愈宿醉。
第四，儘管寬鬆的計劃生育法律，我們預計產2500萬下降與過去10年。育齡的女性人口將下降50萬，到2025年，41萬元的降幅集中在婦女生育率最高：那些年齡20-29。假設在特定年齡的生育率不變，產將下降30％，到2025年中國的生育率與這些鄰國在經濟發展相似點的比較建議經濟和文化因素佔了中國的低生育水平，不政府政策。
第五，中國的城市人口將增長近一半下跌。在過去的10年中，隨著中國城市化大約200萬人口，它走過了城市化對收入曲線我們在全球看到的“陡峭”的部分。展望未來，該曲線變得平坦明顯，具有較低的城市化增長的GDP每增長一個百分點。此外，中國也將沿著這條曲線以較慢的速度移動，因為疲軟的GDP增長。我們預計中國將城市化1.15億，在未來10年。雖然這將標誌著一個顯著的減速，這將仍然看到中國增加日本的全部城市人口的等價物。
第六，我們相信人民幣將下降20％對美元。衛冕事實上的盯住美元的龐大之際資本外流已經花費外匯中國人民銀行數十億美元。除非資本外逃的根本原因被解決，包括利率下降和疲軟的人民幣預期，我們看到那些流出，結束的原因不大。通過貶值人民幣的水平接近市場預期，北京將減少的主要誘因資本離開中國。公允價值的估計，橫跨收入水平的市場匯率和購買力平價匯率之間的全球合作關係繪製表明，含量為每美元大約8人民幣。
第七，我們預計中國的經濟再平衡，以觸發另一個“黑暗時代”對工業商品如銅，煤炭和鋼鐵。中國是工業大宗商品的主要消費者，並已佔據了在過去十年中，絕大多數全球需求的增長。我們預測中國的工業大宗商品需求在未來幾年內下降，因為投資增長減弱。其結果是，需求增長在全球範圍有可能擴大遠遠高於全球GDP慢。從歷史上看，分佔GDP的需求增長一直與真正的下跌大宗商品價格，在此之前中國的投資熱潮盛行幾十年的情況有關。
第八，我們懷疑印度將填補中國的鞋就商品的需求而言。印度是可以趕上中國的人口分量的唯一國家。事實上，人均國內生產總值印度現在接近，中國的人均GDP的10年前就已經導致許多人認為，印度大宗商品的需求正在起飛的邊緣。這種思路混淆中國的大宗商品需求增長的起源。這與其說是中國的發展水平在十年前，也沒有經濟增長就在隨後的幾年，導致中國對大宗商品的貪得無厭註冊。相反，這是中國經濟的沉重的投資方向。除非印度複製中國的增長模式，印度將不會提供同樣推動全球大宗商品的需求。由於印度的多元政治結構，因為新德里缺乏北京的工具來塑造經濟範圍的資本配置，我們懷疑印度的經濟增長模式是有可能效​​仿，中國的。
第九，我們相信中國的醫療支出將增加一倍以上。我們預計醫療保健支出增長遠遠快於GDP增長的一對夫婦廣泛的原因。首先是醫療保健的權利要求總支出隨著收入的增長較大份額的趨勢。這種趨勢在全球範圍內和中國本身是顯而易見的。二是，中國正以驚人的速度老化。中國的人口65歲及以上將是在2025年和較大的130％大50％，到2030年，屆時將有超過歐盟，美國和日本的總和還多的老年人。中國將是中等收入標準的“老”的國家，我們期望它要花費更多比例的醫療保健比典型的中等收入國家。
第十，儘管有許多高調預言，中國將超越美國成為世界上最大的經濟體在相對不久的將來，我們沒有看到在未來十年這種事情發生。按現行匯率，並假定美國召集2.2％，全年GDP增​​速（符合IMF的預測），而中國的增長為4.5％（我們10年預測的上端），美國經濟將大於約30％中國的2025年。
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