Macroscope | If China can fire on all cylinders, a revival of the productivity cycle is attainable
With the ambition of turning China into a global leader in technology, the government has spent significant resources in R&D in recent years, narrowing the gap between China and the US, in per-GDP R&D spending, substantially as a result.
In the last update of the column, we looked back at China’s 40 years of economic development and discussed three distinct phrases of economic transformation.
That analysis dissected China’s growth pattern from a demand angle. But in fact, traditional economic theories on long-run growth tends to focus more on supply-side drivers.
According to the latter, China’s extraordinary economic success over the past four decades was a result of a large demographic dividend – fast population growth, rural-to-urban labour migration and human capital enhancement – and rapid capital formation.
Our model indeed suggests that these “factor inputs” have accounted for between 60 and 90 per cent of trend growth over the past 40 years.
However, as China’s population ages and capital formation slows, the growth model that relies on factor inputs has become increasingly unattainable.
Take labour as an example, China’s working age population peaked in 2011 and has since fallen by over 2 percentage points.
