Chinese Premier Li Qiang's (李強) work report at the Two Sessions conveyed economic messages that drew global attention, particularly the lowered economic growth target. While most observers view this positively, the underlying risks demand careful attention.
China has set this year's economic growth target at 4.5-5%, down from last year's "around 5%" and marking the lowest figure in years—the slowest growth rate since 1991. Most analysts view the official target reduction positively, considering previously high growth rates as "disconnected from reality." Moody's believes this represents China preparing for more stable but slower-paced economic expansion, with "sustainability" replacing "speed" as the primary consideration in economic management.
According to economist W.W. Rostow's stages of economic growth theory proposed in 1960, a country's economic development from poverty to prosperity comprises five stages: traditional society, pre-conditions for take-off, take-off (critical stage), drive to maturity, and high mass consumption. In 1971, Rostow added a sixth stage: the search for quality of life.
More simply, countries in different development stages exhibit varying economic structures, forms, priorities, and growth rates. The pattern is clear: the more mature and larger an economy becomes, the lower its achievable growth rate.
Almost all countries face this constraint. From Japan to Asia's "little dragons," most enjoyed at least a decade of 8-10% annual growth during their economic take-off periods, but as their economies matured and expanded, average growth rates gradually declined to around 3-5%.
Viewing China through this lens, the country maintained an average 10% annual growth rate for 30 consecutive years. With per capita GDP now approaching $14,000, China sits near the World Bank's threshold for high-income status: countries below $1,135 are low-income, $1,136-4,495 are lower-middle income, $4,496-13,935 are upper-middle income, and above $13,935 are high-income.
Even if barely crossing or approaching this threshold, China qualifies as a near-high-income country. Combined with its economic structure's shift toward high-technology and tech industries, plus its status as the world's second-largest economy, China's declining growth rate appears normal, even inevitable.
Officials began promoting the "new normal" concept a decade ago. External observers largely view this target reduction positively, seeing Beijing as more pragmatic and no longer obsessed solely with growth speed. However, this growth rate creates risks across employment markets, social order, and economic growth engines.
Despite China's severe declining birth rates and entering demographic stagnation and decline, the annual influx of new graduates remains staggering. In 2025, 12.22 million graduates will enter China's job market, with this year expecting 12.7 million new graduates. For central and local governments, this creates enormous pressure, necessitating creative solutions to generate sufficient employment opportunities.
A 5% economic growth rate is considered the minimum needed to absorb this massive graduate population. When official growth targets drop to 4.5-5%, creating adequate employment for tens of millions of graduates becomes a concerning issue. Unemployed graduates represent not just an economic problem of wasted human resources, but also a social problem threatening social order and stability, potentially becoming a political problem challenging governmental legitimacy.
In fact, even 5% growth likely cannot absorb these graduates. Recent years have seen China's growth rate decline due to domestic and international economic factors, clearly resulting in graduate job success rates dropping below 50% and youth unemployment rising to around 20%. Many view these figures as "deliberately underestimated," ultimately leading authorities to stop publishing youth unemployment data altogether.
This connects to another economic structural issue. According to Rostow's theory, after the critical take-off period, China should gradually enter maturity and consumption phases. Nearly all advanced economies have consumption comprising 60-70% of GDP, but China's private consumption remains around 40%—far below the global average of 56% and even further from advanced countries' 60%.
Therefore, China needs to boost domestic consumption to stimulate economic growth—the approach with the fewest negative side effects. The International Monetary Fund recently prescribed for China's economy: transition toward consumption-driven growth rather than relying on investment and exports. Chinese officials understand this, hence proposing the "dual circulation" strategy years ago. However, practical implementation proved difficult, ultimately returning to the old export-driven economic model.
If China's declining economic growth increases youth unemployment, this simultaneously weakens consumption capacity, potentially creating a vicious cycle. Li Qiang's renewed emphasis on boosting domestic demand and private consumption raises serious questions about achievability. While China's export-dependent economy has limits, last year's record-breaking exports and trade surplus also planted seeds for increased trade war concerns.
Long-term, if private consumption remains persistently weak and China cannot restructure its economy, the economic outlook and risks become worrying. Whether domestically or internationally, this represents an ultimately unsustainable structure. These are the risks that must be recognized while acknowledging the pragmatic economic growth target.
