China’s economic growth surprised – there is a big problem ahead, says a senior market economist

In the second quarter of the year, China’s gross domestic product grew by 4.3 percent from a year ago. A year in the first quarter China’s economy grew by five percent from a year ago, so the growth rate seems to have slowed down.

In the years 2024 and 2025, China’s economy has grown by five percent in both years, so it does not seem to be an actual collapse.

OP Pohjolan senior market economist Jari Hännikäinen evaluates the prospects of the Chinese economy in connection with the GDP publication. In Hännikäinen’s opinion, China’s demographic change will be one of the most significant drivers defining the global economy in the coming decades.

“China’s working-age population will decrease by around 200 million in the next 20 years. The aging of the population and especially the shrinking of the working-age population will pose a tough challenge to China in the future,” Hannikäinen writes in his review.

As the working-age population decreases in China, wages can be expected to rise. Higher wages, in turn, weaken the country’s export competitiveness. Especially labour-intensive sectors, such as the clothing and electronics industry, will suffer, Hännikäinen predicts.

According to the World Bank’s database, China’s population is already declining and the development is expected to continue.

“As the population ages, China’s ability to innovate weakens over time. Like Western countries, the elderly care and pension system are under heavy pressure, which fuels debt and tax increase pressure. There is a lot of uncertainty about the exact growth effects, but economists predict that demographic change will cut annual growth by 0.5–1.5 percentage points in the long term,” Hännikäinen says.

Hännikäinen estimates that the negative growth effects will accelerate after 2035. For the time being, urbanization and productivity growth partially offset the negative effects of demographic change.

According to Hännikäinen, problems related to population development are recognized in China, but there are no easy solutions.

“China is trying to speed up the birth rate, increase immigration, increase automation, and carry out productivity reforms. However, the examples of other countries, such as Japan and South Korea, show that it is difficult to raise the birth rate sustainably, and immigration will not solve the problems of population development.”

The growth engine of the global economy is coughing

According to Hännikäinen, the weakening of China’s growth potential also puts the conditions for global GDP growth in a new light. Currently, China accounts for approximately 18 percent of world GDP and approximately 30 percent of global GDP growth.

“After the financial crisis, China has acted as the undisputed growth engine of the global economy,” Hännikäinen estimates.

After the financial crisis, China’s economy has grown, but growth has slowed down. According to the World Bank, China’s economy grew by almost ten percent in 2008, but in recent years the growth figures have remained at five percent.

Shifting focuses

Although the changes in China’s demographic structure do not directly bode well, the change can open up opportunities in new places.

When competing with cheap labor becomes more difficult as the population ages, growth opportunities arise for India and African countries, for example, Hännikäinen reflects.

The change will also affect different industries in different ways. Hännikäinen foresees “attractive growth prospects” for healthcare and pharmaceutical companies.

According to Hännikäinen, China will have to increase productivity in the future. It will be visible in the business of robotics, automation and artificial intelligence companies, he believes.