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What Drives China's Growth? Evidence from Micro-level Data

November 13, 2018
Tomoyuki Iida*1
Kanako Shoji*2
Shunichi Yoneyama*3


This paper discusses the sustainability of China's rapid growth mainly based on the estimation of the corporate-level total factor productivity of Chinese listed firms. Since the 1980s, both capital accumulation and rapid technological progress -- measured as total factor productivity (TFP) -- have contributed to the high growth of the Chinese aggregate output. Should the prediction of the standard growth theory be correct, however, economic growth led by capital accumulation is not likely to be long lasting, hence we mainly focus on firm level TFP growth. As a result, we identify four channels that would continue to promote the TFP growth of the Chinese corporate sector at an aggregate level: (i) declining proportion of low-productivity state-owned enterprises, (ii) continuous influx of highly competent new start-ups, (iii) broad catching up trend among the laggards in the firm distribution, and (iv) innovation spawning R&D activities. These four channels would underpin the medium-term economic growth of the Chinese economy.

JEL Classification

China, Total Factor Productivity, Catching up, R&D

We would like to thank Tomoyuki Fukumoto, Hibiki Ichiue, Ryo Kato, Tomohide Mineyama, Koji Nakamura, Yoshinori Nakata, Akira Otani, Tomohiro Sugo, and Toshinao Yoshiba as well as the staff of the Bank of Japan for their helpful comments. The opinions expressed here, as well as any remaining errors, are those of the authors and should not be attributed to the Bank of Japan.

  1. *1International Department, Bank of Japan
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  2. *2International Department, Bank of Japan
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  3. *3International Department, Bank of Japan
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