China’s chances of becoming the world’s top economy might need rethinking, according to a recent article by Mohamed El-Erian, chief economic adviser at Allianz.

What Happened: El-Erian, in the article that appeared in Financial Times, suggests that the Chinese government’s current economic approach is unlikely to bring about a return to its previous position as a powerful driver of global economic growth, reported  Business Insider.

“It is time for the markets to recognize that China is not reverting to its old economic and financial playbook, and its return as a powerful driver of global economic growth is unlikely in the near future,” El-Erian wrote.

“Economic performance is likely to remain lackluster for the remainder of 2023 and the first half of 2024.”

Despite a brief period of economic rebound following the lifting of pandemic restrictions, China’s economic performance has since been disappointing. High levels of youth unemployment and deflationary pricing are among the challenges faced.

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Investors and analysts have been vocal about their hopes for a large-scale stimulus program from Beijing to boost the economy. However, El-Erian suggests this is unlikely due to concerns about high debt levels and the potential for corruption.

Instead, Beijing is implementing smaller measures and transitioning towards new growth industries like green energy and artificial intelligence.

El-Erian also noted that larger debt restructuring measures may be required and Beijing may need to reconsider its role in domestic markets. Bloomberg economists also predict that China’s GDP growth will slow to just 1% by 2050.

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Photo: Courtesy of Wikimedia Commons