Abstract:
Since 2010, the Chinese economy has turned away from the high growth in the previous decade and continued on a downward trend as the economic structure undergoes profound transformation. Reasons for the slowdown of economic growth are consistent with those for other economies at similar stages of development. First, investments in China’s agriculture, manufacturing and construction industries have passed their peak and the space for learning from advanced economies has narrowed, which has led to decline of labour productivity growth. Second, the shift of economic activity from agriculture to secondary and tertiary industries has decelerated, while the shift from the second industry to the tertiary industry has been gaining momentum. The authors believe that the Chinese economy remains on track with its catch-up, with increases in productivity slowly gone from being driven by the accumulation of physical capital to being driven by knowledge and technology.
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Key takeaways:
· Since the advent of the second decade of the 21st century, economic growth in China has turned away from the high growth in the previous decade and continued on a unilateral downward trend as the economic structure undergoes transformation. From the expenditure perspective, consumption now plays a greater role in supporting economic growth. From the industry perspective, the tertiary industry has become an increasingly importance source of economic growth.
· Examination of the reasons for the downward trend of China’s economic growth and structural changes breaks down the changes in economic growth into structural effect and catch-up effect. The former refers to changes in labour productivity as a result of labor and capital shifting from agriculture to secondary and tertiary industries. The latter refers to rapid increases in labor productivity achieved by developing countries through the accumulation of capital and economy of scale during the low-income period.
· During the period of economic catch-up, both the structural effect and the catch-up effect contribute to the rapid growth of labor productivity.
· As the per capita income increases, the shift of economic activity from agriculture to secondary and tertiary industries slows down substantially, and the structural effect contributes less to economic growth. Meanwhile, the gap in agricultural, industrial and construction productivity between developing and developed countries narrows significantly. Particularly after the investment in these industries peak, the catch-up effect will contribute less and less to economic growth.
· The reasons for the downward trend of China’s economic growth are consistent with those for other economies at similar stages of development. First is that investment in China’s agricultural, industrial and construction industries have passed their peak, and the space for learning from advanced economies has narrowed and the difficulty increased, which has led to the slowdown of labour productivity growth. This accounts for 70% of the labour productivity deceleration. Second is the slowing down of the shift of economic activity from agriculture to secondary and tertiary industries in addition to the shift from the second industry to the tertiary industry, which accounts for 30% of the labour productivity deceleration.
· Judging from the experience of Japan, South Korea, Taiwan Province of China and certain European economies, the Chinese economy remains on track with its catch-up.
· Increases in productivity have slowly gone from being driven by the accumulation of physical capital to being driven by knowledge and technology, and from standardised capital-goods industries to knowledge- and technology-intensive industries such as high-end agriculture and manufacturing, information technology, education and scientific research, medical care, financial services and business services. Standardised learning from advanced economies has decreased while non-standardised learning increases. To improve productivity requires combining the experience of advanced economies with more sophisticated local institutional and policy design.
