China's economy faces a rough ride in the next few years

The world couldn't hide its disappointment when China's first-quarter GDP growth dropped to 7.7 per cent, slightly lower than market expectations. Unfortunately, this might just be the start; worse news could be just around the corner. Indeed, there are a number of reasons why the Chinese economy faces a downturn over the next few years. So, just how bad can it get?

First, the current leadership transition is an issue. It is clear the new Chinese leaders will introduce many changes, because they understand there is absolutely no alternative to secure China's long-term growth. Without major policy adjustments, any notion of turning the nation into a real superpower over the next few decades will just be an unrealistic dream. Certainly, the transition process will lead to social pain, particularly for the economy. In the meantime, the world needs to be aware of this so that another severe slide in China's gross domestic product will not come as a big blow to the global economy.

Second, economic growth is no longer the top priority on the Chinese agenda. Since the growth target is set at 7.5 per cent, the market should not expect any stimulus plan when it fluctuates to around seven per cent, or goes lower. As President Xi Jinping recently emphasised, the days of "ultra-high-speed" growth in China are over. Thus, policymakers will tolerate further economic decline.

China no longer needs double-digit growth. Other issues, such as environmental protection, industrial upgrading and economic restructuring, have become more prominent. As a government policy-driven economy, it is important not to underestimate the negative effect this will have on overall growth. In the worst case, China may experience a brief deadlock.

Third, the therapy for the real-estate tumour might be painful. Over the past decade, the property market has inadvertently acted as a major driver of China's hypergrowth, which has created deep-rooted systematic problems for sustainable development in the future.

The new government has no choice other than to provide progressive measures to deflate the property bubble. This will affect many industries, not only in China, but internationally; for instance, weakening Chinese demand will probably mean the end of the bullish global commodity market.

Fourth, the new leadership seems very serious about dealing with corruption. Fighting corruption is a brutal and complicated long-term commitment, and this initiative is very likely to last for the decade of Xi's term in power. The fact is that some people will eventually lose some or all of their economic interests.