Recent Productivity Trends in China: Evidence from Macro- and Firm-Level Data

Abstract

Using macro- and micro-level data, this article examines China’s productivity growth slowdown after 2007. The authors find that strong investment in infrastructure and housing led to lower returns to capital. Firm-level evidence suggests that limited market entry and exit and a lack of resource allocation to more productive firms were associated with slower manufacturing total factor productivity (TFP) growth. Earlier reforms had led to convergence in productivity between state-owned and private manufacturing companies, but this process stalled after 2007. China’s growth potential remains high, but its long-term prospects depend on reversing the decline in TFP growth.