China facing a daunting set of challenges: Capital Economics

While the near-term outlook for China appears to have improved a bit, the long-term challenges remain daunting, Neil Shearing, group chief economist of London-based Capital Economics, said in a new report.

“The past week has brought further signs that China's cyclical downturn is starting to bottom out. But as we've argued before, in addition to a cyclical slowdown, the economy is also facing structural challenges that will continue to pull trend growth lower over the next 5-10 years,” the Capital Economics report added.

Noting that a meaningful recovery in growth over the next 6-12 months is not expected, the Capital Economics report added that China has been facing two slowdowns: a cyclical one, and a structural one.

While policy stimulus can counter cyclical weakness, the report said, but China’s structural challenges require a different response, focused on addressing deeper-seated constraints that have built in its economy.

While overall GDP growth will fluctuate across the cycle, it will remain on a downward trend over the long run, Capital Economics report maintained.