China's Growth to 2030: The Roles of Demographic Change and Investment Risk
China's economic growth has, hitherto, depended on its relative abundance of production labour and its increasingly secure investment environment. Within the next decade, however, China's labour force will begin to contract. This will set its economy apart from other developing Asian countries where relative labour abundance will increase, as will relative capital returns. Unless there is a substantial change in population policy, the retention of China's large share of global FDI will require further improvements in its investment environment. These linkages are explored using a new global demographic model that is integrated with an adaptation of the GTAP-Dynamic global economic model in which regional households are disaggregated by age and gender. Interest premia are integral with projections made using these models and in this paper their influence on China's economic growth performance is investigated under alternative assumptions about fertility decline and labour force growth. China's share of global investment is found to depend sensitively on both its labour force growth and its interest premium though the results suggest that a feasible continuation of financial reforms will be sufficient to compensate for a slowdown and decline in its labour force.
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