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China's Long-Term Growth Potential: Can Productivity Convergence Be Sustained?

June 30, 2021

  • Takatoshi Sasaki*1
  • Tomoya Sakata*2
  • Yui Mukoyama*3
  • Koichi Yoshino*4

Abstract

This study estimates the growth rate of China's economy until 2035 based on the assumption that productivity will continue converging to that of frontier economies and assesses the feasibility of such an outcome. Our estimates imply that the size of China's economy can potentially double by 2035 as long as the country follows the "catch-up" process achieved by other East Asian economies. However, given the circumstances that China faces, such as the need to maintain agricultural output levels, limits to the growth of its export-dependent manufacturing industry, and the aging of the population, the obstacles to following the other East Asian economies' catch-up process are substantial. To overcome these obstacles and proceed with catch-up, China will need to boost TFP growth by promoting innovation and making steady progress in addressing institutional and resource allocation issues.

JEL classification
E21, E22, J11, O11, O47

Keywords
China, Catch-up Process (Convergence), Aging of the Population, Savings Rate, Total Factor Productivity (TFP) Growth

The authors are grateful for the valuable comments from Tomoyuki Fukumoto of the Osaka University of Economics and the staff of the Bank of Japan, in particular, Yoshiaki Azuma, Yoichi Ueno, Yosuke Uno, Hideto Sakashita, Teppei Nagano, and Hideo Hamada. The authors are also grateful to Miyuki Matsunaga for the help of Chinese literature research. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan. All remaining errors are our own.

  1. *1International Department, Bank of Japan
    E-mail : takatoshi.sasaki@boj.or.jp
  2. *2International Department, Bank of Japan
    E-mail : tomoya.sakata@boj.or.jp
  3. *3International Department, Bank of Japan
    E-mail : yui.mukouyama@boj.or.jp
  4. *4International Department, Bank of Japan
    E-mail : kouichi.yoshino@boj.or.jp

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