Growth, Productivity and Digitalisation in China

This is a preview from the National Institute Economic Review, November 2020, no 254.

Despite so far successfully bouncing back after Covid-19 shock, China is facing a twin challenge from falling global demand and its rapidly ageing society. To address this challenge, the country needs to raise domestic labour productivity by embracing wide adoption and diffusion of digital technologies and automation. There is a saying that ‘China is growing old before it’s getting rich’. In fact, due to low birth rates and rising life expectancy the UN projects that in 80 years China’s population will shrink from 1.4 to less than 1.1 billion people. At the same time GDP per capita is still 3-4 times below the US, Germany and UK. China’s export-led growth model is vulnerable to falling demand for its exports, and at the same time Chinese overseas expansion via multinational enterprises also faces increasing challenges due to national security concerns.

NIESR Senior Economist David Nguyen, who has prepared the analysis in this Box, said: "Although China has a competitive edge in digital economy, it has to face important challenges in order to achieve higher productivity levels based on wider adoption and diffusion of digital technologies with an ageing population in a post-pandemic world. Moreover, there is a downside risk to growth if China decides to respond to Western protectionism regarding its digital companies with further protectionist measures at home."