The guessing game behind Beijing’s economic growth forecasts looks like a way to show China naysayers incompetent and their agenda ideologically biased.

And incompetent they are, because China’s this year growth estimate between 4.5 percent and 5 percent is fully consistent with the country’s noninflationary growth potential of 4.6 percent.

That potential economic growth number has been produced by the OECD – an official international organization -- in case some China’s foreign observers wish to dismiss it as Beijing’s propaganda.

In fact, the OECD estimate tells the whole story of China’s economic development over the last thirty years. The noninflationary growth potential is, therefore, an issue to ponder instead of current consensus that compositional changes in China’s demand management will raise economic growth.

China’s sustained increase of economic growth can only be achieved by expanding the physical limits to noninflationary economic activity. And those limits are set by the stock and quality of China’s human and physical capital.

That’s where China needs to concentrate its policy focus.

My former colleagues at the OECD have provided an important analytical input by offering the estimate of China’s current economic growth potential of 4.6 percent. That estimate is down from 10 percent in the first decade of this century; it was halved to 5 percent by 2020 and is now seen going further down to 4.6 percent by the end of this year.

What happened?

The answer lies in two economic variables: Labor force and productivity, because the noninflationary growth potential is the sum of growth rates of those two variables.

China can have a steady and sustainable growth

Unfortunately, official international estimates of China’s labor force growth and total (labor and capital) productivity growth are not available. That is probably why IMF’s Executive Board recommended in its Article IV Consultations with China, dated February 28, 2026, that “improving data quality and transparency can enhance policymaking and surveillance.”

The message for China is clear: The policy objective China calls “quality growth” is only possible with growing labor supply and an increasingly productive labor force.

On current evidence, more work needs to be done on both problems. Last December, China’s labor participation rate was 64.4 percent. That was the number of people as a percentage of the civilian population that was either working or actively looking for work. The same data are showing that December’s labor participation rate was down from a long-term average of 72 percent.

There is plenty of work, therefore, for Chinese government to stabilize or, preferably, reverse the decline of its labor force in the years to come. If China does not do that, its noninflationary growth potential will continue to decline – dragging down its actual economic growth, with all the ensuing social, political and security consequences.

Strong domestic demand and balanced foreign trade

The compositional changes of China’s demand and output primarily concern household consumption and its export-driven economic activity.

Those are relatively simple problems to solve because the implied policy changes are quite clear.

Private consumption is driven by employment, inflation adjusted disposable (i.e. after tax) income and credit costs (i.e. interest rates).

All these variables are powerful determinants of private consumption spending that in most developed economies makes up 60-70 percent of GDP.

Here again, China has a long way to go to catch up with those averages because the latest numbers show that the household spending in China remains slightly below 40 percent of GDP.

Strengthening real household incomes would expand domestic demand and reduce the need for Chinese businesses to rely on foreign markets. And that, in turn, would solve an equally important problem created by China’s large and systematic trade surpluses.

Last year, for example, China’s foreign trade accounted for 32 percent of GDP and rose 3.2 percent from 2024.  Most of that trade growth came from China’s 5.5 percent increase in exports, because there was no change in China’s purchases of goods and services from the rest of the world.

Those mercantilist developments have led to serious problems in Beijing’s relations with the U.S. and the European Union.

China’s excessive trade surpluses could also lead to similar tensions with ASEAN (eleven Southeast Asian countries) -- Beijing’s largest trade partner. Chinese exports to ASEAN last year soared 13.4 percent while imports fell 2 percent. Similarly, China’s trade with its 150 Belt & Road partners shows a slight decline in imports, but a strong 11 percent growth in Chinese exports.

China’s solid fundamentals leave plenty of room to address structural problems that would expand its noninflationary growth potential. A solution to those structural imbalances would also raise domestic demand and reduce China's dependence on export driven growth.