Since the reform and opening-up period, China’s economy has experienced sustained rapid growth despite repeated cycles of expansion and contraction. Although growth rates have steadily declined since 2007, this slowdown remained stable and predictable for a considerable period, consistently exceeding government targets. Recently, however, China’s economic growth appears to have reached a new turning point. Mounting domestic pressures and external uncertainties have pushed its growth to around 5%, and as these challenges are increasingly perceived as structural rather than cyclical, assessments of China’s slowdown have shifted from “prospects” to “concerns.”

Currently, China faces a range of external uncertainties, including intensifying U.S.–China tensions and technological competition, escalating geopolitical conflicts, the global spread of protectionist industrial policies, and ongoing fragmentation of global supply chains. Domestically, the economy is experiencing multiple downward pressures, including weakened growth momentum due to the delayed recovery of the real estate sector, potential shocks stemming from risks such as local government debt, and persistently high youth unemployment. Nevertheless, concerns about a sharp economic downturn remain limited, as the Chinese government continues to implement various policy measures to foster a new phase of economic growth. These efforts appear broadly aligned with addressing the structural causes of the slowdown. China’s key growth strategies—such as the “dual circulation strategy,” “new quality productive forces,” and “Chinese-style modernization”—combined with strong policy support, are driving rapid industrial transformation and technological innovation, thereby laying the foundation for new growth momentum.

Overall, China’s economy is currently influenced by a complex mix of positive and negative factors. However, it remains difficult to determine which factors will ultimately dominate. Given South Korea’s extensive economic ties with China across multiple sectors, a careful assessment of China’s growth outlook and a recalibration of cooperation strategies have become increasingly important. Accordingly, this report analyzes structural changes from both supply-side (Chapter 2) and demand-side (Chapter 3) perspectives, conducts univariate time-series analysis, and develops a GVAR (Global Vector Autoregression) model to examine structural changes in China’s economic growth and to generate medium- to long-term growth forecasts (Chapter 4), and derives policy implications for South Korea (Chapter 5).

In Chapter 2, the supply-side analysis (capital, labor, and total factor productivity) examines changes in each factor, key growth challenges, and government responses, followed by an evaluation of their implications.

First, China’s capital-driven growth model became increasingly unsustainable after 2006 due to declining returns on capital and rising ICOR. In response, the government implemented supply-side structural reforms, industrial policies (e.g., Made in China 2025), and SOE reforms. While policy support for strategic industries such as solar energy, electric vehicles, and batteries rapidly enhanced competitiveness, it also led to concerns about overcapacity. Maintaining a balance between state-led capital expansion and fair competition with private enterprises remains a critical issue.

Second, China’s working-age population is declining, with fertility rates around 1.0 and the elderly population reaching 14.2% in 2023. Despite continued investment in education and R&D, mismatches between urban concentration and labor demand have resulted in the coexistence of high youth unemployment and shortages of skilled labor in high-tech industries. Rising labor costs and regional disparities further constrain productivity growth.

Third, TFP has declined since 2008 due to inefficient resource allocation, institutional rigidities, and weak commercialization of innovation. Although China has achieved strong quantitative performance in R&D investment and patent output, persistent issues such as overinvestment and the weak linkage between innovation and profitability continue to limit productivity gains.

Chapter 3 focuses on demand-side factors (investment, consumption, net exports, and government spending) to analyze growth challenges, policy responses, and their implications.

First, the traditional investment-driven growth model—centered on fixed asset investment and real estate—is weakening due to prolonged market stagnation, rising corporate debt, and subdued private investment. Although the government is redirecting investment toward advanced manufacturing and new infrastructure, concerns about duplicative investments led by SOEs and policy inconsistency continue to undermine private sector confidence.

Second, while the contribution of consumption to GDP has been increasing, recovery has remained sluggish since 2020 due to stagnant incomes and weak consumer sentiment. Government policies have largely relied on short-term subsidies, rather than addressing the structural reforms required for sustained consumption growth.

Third, China is prioritizing improvements in the quality of trade over its volume, expanding high value-added goods, digital trade, and services trade through participation in frameworks such as CPTPP and RCEP. However, the contribution of net exports to growth remains limited and volatile.

Fourth, since 2008, fiscal expansion has played a key role in supporting economic activity, with increased spending on healthcare and social welfare following the pandemic. However, declining real estate-related revenues and rising hidden local government debt—particularly through LGFVs—pose risks to fiscal sustainability. The central government is attempting to balance the need for economic stimulus with fiscal discipline through measures such as ultra- long-term bonds and debt restructuring.

Chapter 4 utilizes time-series data from Q3 1979 to Q1 2025 for univariate analysis and applies a GVAR model covering 34 countries to conduct a multi-layered analysis of structural characteristics, medium- to long-term prospects, and global spillover effects of China’s real GDP growth.

The three downward shifts identified in the structural break analysis broadly correspond to periods of policy regime change (the 2012 “New Normal,” the 2016 supply-side reforms) and external shocks (the 2019 U.S.–China trade dispute). Volatility analysis suggests that China’s economy may have transitioned from a high-growth, high-volatility regime to a medium-growth, low-volatility regime after 2012. However, the sharp contraction of -10.50% during the 2020 pandemic highlights continued vulnerability to external shocks. Under the baseline scenario of the GVAR model, projected average growth rates for five-year periods are 4.57% for 2025–2030, 2.84% for 2030–2035, 2.06% for 2035–2040, 2.22% for 2040–2045, and 1.01% for 2045–2050, indicating a clear long-term slowdown trend. A key implication of these projections is the likely decoupling between demand and supply after the mid-2030s. While investment-driven expansion of supply capacity may generate short-term demand, it could also lead to a self-reinforcing cycle of overcapacity in the medium to long term, with demand constraints emerging as a significant drag on growth.

In the global spillover analysis, South Korea exhibits a persistent GDP response of -0.22% to China’s demand shocks, indicating relatively high sensitivity compared to other countries. Inflation responses vary across countries, and some results for demand and supply components are inconsistent with theoretical expectations or GDP responses, suggesting the need for cautious interpretation.

Finally, Chapter 5 presents the conclusions and policy implications for South Korea. China’s medium- to long-term growth trajectory reflects an ongoing effort to overcome structural constraints on both the supply and demand sides, while transitioning toward a more quality-oriented growth model driven by high-efficiency industrial development. This transformation represents not merely cyclical adjustment but a broader restructuring of industrial policy, technological strategy, and institutional frameworks. South Korea faces a complex relationship with China in which cooperation and competition coexist, and must respond carefully to changes in China’s growth structure and strategic direction. Based on these findings, the report derives the following implications for South Korea:

1) Responding to Intensifying Industrial Competition and Mitigating Restructuring Risks
China’s structural economic changes are driving transformations in industrial structures and shifts in productivity paradigms. The country is pursuing strong industrial policies centered on high-tech industries to expand “new quality productive forces” and achieve technological self-reliance and self-strengthening, which acts as a structural pressure factor on South Korea’s economy. Given the policy directions of both countries, competition in high-tech industries is likely to intensify further, particularly in sectors where both countries are strengthening technological capabilities, such as semiconductors, AI, and secondary batteries. In response, South Korea needs to support firms’ high-tech development and expand R&D investment. In addition to capital support to enhance firms’ innovation capabilities, it is also necessary to assess whether excessive regulations hinder the commercialization of innovative technologies, while simultaneously promoting regulatory sandbox programs and developing industrialization platforms.
In addition, in response to China’s industrial upgrading and technological advancement, South Korea needs to strengthen its frameworks for standards, patents, and intellectual property rights. This is because China’s growing technological capabilities are expanding competition beyond industrial production to include standards, patents, and IP systems that shape global norms and trends. Accordingly, South Korea should reinforce national-level response systems centered on technology standardization and patent strategy institutions, and establish mechanisms that incorporate international standardization from the early stages of R&D. Furthermore, as competition for technological self-reliance intensifies, the importance of technology security is also increasing, necessitating the development of comprehensive national systems for technology protection and industrial security.
Moreover, attention should be paid to the possibility that domestic overinvestment resulting from China’s strategic industry expansion may lead to global oversupply, thereby directly affecting the profitability of South Korea’s high-tech industries. South Korea should pursue strategies such as increasing value-added production in advanced materials and components and strengthening brand loyalty, thereby facilitating a transition toward a technology-driven export model that moves beyond price competition. In response to intensifying subsidy competition, South Korea may also consider regulatory approaches through international cooperation channels based on WTO norms, while establishing monitoring systems to track the impact of China’s excess supply on global market prices.

2) Institutionalizing Growth Opportunities and Upgrading Industrial Cooperation
China is pursuing a transformation toward consumption-driven growth alongside industrial upgrading, which is likely to generate new markets and expand demand in related industries. In addition, increased fiscal spending by the Chinese government in social service sectors such as welfare, healthcare, and education is expected to create new opportunities for cooperation in South Korea’s service industries.
In particular, China’s demographic changes present significant opportunities for South Korea. The expansion of aging and welfare-related demand is driving rapid growth in China’s healthcare and silver industries. South Korea can consider entering these markets by leveraging its comparative advantages in medical services, smart healthcare devices, and health data management solutions. Furthermore, based on Korea’s experience in health insurance and long-term care systems, expansion into integrated healthcare and elderly care industries can be pursued through public–private partnership (PPP) projects with Chinese local governments and state-owned enterprises.
As China’s middle class is expected to expand due to policies aimed at stabilizing employment and increasing household income, opportunities also arise for cooperation aligned with evolving consumption patterns. As consumption upgrading continues, demand for high value-added sectors such as premium consumer goods and cultural content is expected to increase. Given that China’s younger consumer groups (MZ generation) emphasize “quality, storytelling, and experience,” South Korea can expand its consumer base by adopting tailored marketing and export strategies linked to Chinese digital consumption platforms, as well as brand premiumization strategies based on K-culture. However, it is also necessary to strengthen preemptive institutional cooperation between the Korean and Chinese governments to address issues such as brand IP infringement and design patent protection that may arise in the process of entering the Chinese market.

3) Building Buffer Systems for Uncertainty and Macroeconomic Volatility
China’s medium- to long-term economic slowdown and policy uncertainty are likely to have direct implications for South Korea’s economic stability. In particular, the anticipated weakening of growth potential after 2040 and risks associated with local government finances may pose practical risks for Korean firms participating in China-related projects and PPP initiatives. Given that China’s industrial policies are often strongly implemented at the local government level, the Korean government and relevant agencies supporting overseas business expansion should comprehensively assess policy conditions across regions and provide targeted support for Korean firms entering the Chinese market.
In addition, as China actively promotes its own standards in areas such as technology standards, intellectual property rights, and FTA frameworks while expanding its influence in the international standard-setting system, South Korea should strengthen its capacity for standard diplomacy and institutionalize channels for technology standard consultations within multilateral cooperation frameworks, including Korea–China–ASEAN.
Furthermore, if China’s structural slowdown materializes, its impact could significantly spill over into South Korea’s exports, investment, and financial markets. In response, South Korea should establish a medium- to long-term, scenario-based policy management framework to reduce dependence on China, while simultaneously developing financial risk mitigation mechanisms to address supply chain instability and increased volatility in the RMB exchange rate. Accordingly, South Korea should adopt a strategic approach across three dimensions—policy, market, and institutional—by pursuing proactive risk management for China’s economic slowdown, strengthening international cooperation safety nets, and enhancing the resilience of its domestic industrial system.

국문요약

제1장 서론
1. 연구의 배경 및 목적
2. 선행연구와의 차별성
3. 연구의 주요 내용

제2장 중국의 공급 측 성장요인과 구조 변화 분석
1. 자본
2. 노동
3. 총요소생산성
4. 소결

제3장 중국의 수요 측 성장요인과 구조 변화 분석
1. 투자
2. 소비
3. 순수출
4. 정부지출
5. 소결

제4장 중국경제 성장구조 분석 및 전망
1. 개요
2. 중국 실질 GDP 성장률의 단변량 시계열 분석
3. GVAR 모형을 통한 중국의 실질 GDP 성장률 전망
4. 소결

제5장 결론 및 시사점
1. 결론 및 전망
2. 한국에 대한 영향 및 시사점

참고문헌

부록
1. 시계열 분해 방법론
2. 주성분 추출을 위한 데이터 전처리 및 방법론적 세부사항
3. 중국의 약외생성 검정 결과

Executive Summary