Understanding the Slowing Growth Rate of the People's Republic of China

Asian Development Review 32:1

30 Pages Posted: 7 Apr 2016

See all articles by Dwight Perkins

Dwight Perkins

Harvard University - Harvard Kennedy School (HKS); Harvard University - Department of Economics

Date Written: April 13, 2015

Abstract

It is increasingly accepted that the gross domestic product (GDP) growth rate of the People’s Republic of China (PRC) is slowing down, but the reasons for the slowdown are not yet well understood. Part of the reason is that growth in all countries that reach high-income status slows down when they reach a global research income level that is still far below the level of the highest income countries. In the PRC, on the supply side, this is happening because total factor productivity (TFP) is slowing down whereas, because of slowing labor force growth, it would have to increase in order to maintain near double-digit GDP growth. On the demand side, a low share of household income in GDP has required the PRC to maintain an unusually high rate of investment in transport infrastructure and housing, but the rapid growth in both of these areas is coming to an end. Environmental investment could take up the slack and keep aggregate demand at a level that would fully employ resources. Finally, the PRC has reached the point where the manufacturing share of GDP has peaked and will begin to decline as the economy becomes increasingly service based, but services seldom grow at the double-digit rates that manufacturing is sometimes capable of.

Keywords: TFP, GDP growth rate, housing construction, transport investment, environmental investment, service-based economy

JEL Classification: E6, O43, O47, P42

Suggested Citation

Perkins, Dwight H., Understanding the Slowing Growth Rate of the People's Republic of China (April 13, 2015). Asian Development Review 32:1. Available at SSRN: https://ssrn.com/abstract=2759009

Dwight H. Perkins (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Harvard University - Department of Economics ( email )

Littauer Center
Room M-12
Cambridge, MA 02138
United States
617-495-2164 (Phone)

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