China's Declining Business Dynamism

42 Pages Posted: 30 Mar 2022

See all articles by Diego Cerdeiro

Diego Cerdeiro

International Monetary Fund (IMF)

Cian Ruane

International Monetary Fund (IMF)

Date Written: February 1, 2022

Abstract

After impressive growth in the 2000s, China's productivity has more recently stagnated. We use firm-level data to analyze productivity and firm dynamism trends from 2003 to 2018. We document six facts that together show a decline in China’s business dynamism. We show that (i) the revenue share of young firms has declined, (ii) the life-cycle growth of young firms relative to older incumbents has slowed, (iii) weaker life-cycle growth can be explained by slower productivity growth and weaker investment in intangibles, (iv) younger and smaller firms are more capital constrained than their older and larger counterparts, (v) the responsiveness of capital growth to the marginal product of capital has declined, and (vi) large productivity gaps between SOEs and private firms persist. We find that business dynamism is weaker in provinces where SOEs account for a larger share of the capital stock. Our results suggest that declining private business dynamism is an important factor in explaining China's sluggish TFP growth and that SOE reform could boost productivity growth indirectly by stimulating business dynamism.

Keywords: China, total factor productivity, growth, business dynamism., business dynamism, life-cycle growth, SOE reform, China's productivity, dynamism trend, Productivity, Public enterprises, Total factor productivity, Capital productivity, Aging

JEL Classification: O11, O47, E23, L30, D24, E24, J14

Suggested Citation

Cerdeiro, Diego and Ruane, Cian, China's Declining Business Dynamism (February 1, 2022). IMF Working Paper No. 2022/032, Available at SSRN: https://ssrn.com/abstract=4065452

Diego Cerdeiro (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Cian Ruane

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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