The evolution of China’s growth model: challenges and long-term growth prospects

China’s investment-led growth model enabled an unparalleled period of high growth and economic development. However, the rate at which China can productively absorb investment is declining as its economy matures. Nevertheless, the most recent policy approach to address economic weakness is to double down on its investment-centric approach and to identify new productive sources, which is widely expected to increase already existing overcapacities. Efforts to direct these overcapacities to export markets, often through lower prices or prices made competitive by comparatively high rates of state subsidies, will have global implications for China’s trading partners. Lower priced exports could lead to spillovers of disinflationary pressures, both through direct and indirect effects via changes in the pricing behaviour of trading partners’ domestic firms. China's growing dominance in global exports of advanced manufacturing and green technology will affect competitiveness among China’s major trading partners. Industrial and trade policies will be increasingly important in determining the economic outcome of China’s trade relations. JEL Classification: O4, O53, E22, F4