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China's Productivity Slowdown and Future Growth Potential (English)

China’s economy grew by an impressive 10 percent per year over four decades. Productivity improvements within sectors and gains from resource reallocation between sectors and ownership groups drove that expansion. However, productivity growth has declined markedly in recent years. This paper extends previous macro and firm-level studies to show that domestic factors and policies contributed to the slowdown. The analysis finds that limited market entry and exit and lack of resource allocation to more productive firms were associated with slower manufacturing total factor productivity growth. Earlier reforms led to state-owned enterprises catching up to private sector productivity levels in manufacturing, but convergence stalled after 2007. Furthermore, the allocation of a larger share of credit and investment to infrastructure and housing led to lower returns to capital, a rapid buildup in debt, and higher risks to growth. China’s growth potential remains high, but its long-term growth prospects depend on reversing the recent decline in total factor productivity growth.


  • Author

    Brandt,Loren, Litwack,John, Mileva,Elitza Alexandrova, Wang,Luhang, Zhang,Yifan-000568579, Zhao,Luan

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  • Document Type

    Policy Research Working Paper

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  • Region

    East Asia and Pacific,

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  • Doc Name

    China's Productivity Slowdown and Future Growth Potential

  • Keywords

    productivity growth; state-owned enterprise; trade and investment; global financial crisis; output per worker; state-owned firms; total factor productivity growth; capital-output ratio; marginal product of labor; Agricultural Bank of China; state-owned company; information and communication technology; efficiency of resource allocation; gross fixed capital formation; returns to capital; labor productivity growth; reallocation of resource; return on capital; global technology frontier; movement of worker; per capita income; decline in productivity; difference in returns; allocation of credit; local government debt; return on asset; lack of resource; recent years; share of capital; primary education universal; balance sheet assets; exposure to risk; financial sector data; product of capital; intellectual property rights; annual average growth; value added tax; investments in infrastructure; composition of debt; use of capital; foreign ownership restriction; change in employment; soft budget constraint; movement of labor; capital output ratio; debt service costs; local government spending; share of credit; high debt levels; million people; debt sustainability framework; decomposition of growth; improving productivity; transfer of technology; capital per worker; fiscal stimulus package; aggregate productivity growth; market exchange rate; Access to Education; public policy objective; Contingent Government Liabilities; average life expectancy; number of workers; high productivity growth; management of insolvency; labor productivity level; asian financial crisis; local government financing; measure output; Real estate; employment share; official statistic; advanced country; business service; manufacturing sector; Bank Credit; business sector; reallocating resource; government investment; real gdp; manufacturing productivity; small bank; market entry; state sector; real value; bond swap; petroleum refining; government bond; city bank; regional banks; factor inputs; empirical evidence; annual sale; Trade Restrictiveness; commercial bank; corporate sector; capital accumulation; investment growth; metal product; food processing; productivity gap; joint stock; preferential access; capital stock; government capital; domestic factor; future productivity; entry rate; creditor committee; new credit; productivity distribution; private competitor; capital deepening; corporate bond; price index; firm level; measurement challenges; estimation methodology; debt stock; regression results; outstanding stock; underdeveloped region; timber processing; foreign equity; state ownership; redundant worker; Company Law; institutional framework; existing technology; state holding; aggregate data; Economic Stimulus; diversified ownership; standard error; debt accumulation; available data; debt rise; leverage ratio; trust loan; ownership change; tax rate; macroeconomic stabilization; measure of use; credit constraint; social stability; productivity estimate; large enterprise; Public Infrastructure; market power; plastic products; market-oriented reforms; new entrant; intermediate input; aggregate output; firm exit; sample period; primary source; government's policy; rubber products; mineral product; ferrous metal; nonferrous metal; real impact; transport equipment; diminishing return; across province; output price; firm ownership; Paid-In Capital; tobacco sector; Public Goods; aggregate investment; firm size; high commodity; negative shock; ownership structure; business infrastructure; paper product; aggregate capital; government subsidy; infrastructure sector; real capital; time t; Tax Exemption; private company; international convergence; foreign technology; investment expansion; investment conditions; financial service; market reform; external developments; market access; foreign investor; Business Climate; market exit; market institution; technological progress; labor input; production function; capital increase; capital share; capital spending



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Brandt,Loren Litwack,John Mileva,Elitza Alexandrova Wang,Luhang Zhang,Yifan-000568579 Zhao,Luan

China's Productivity Slowdown and Future Growth Potential (English). Policy Research working paper,no. WPS 9298 Washington, D.C. : World Bank Group.