The Long-term Potential Growth Rate of the Chinese Economy: Research Progress, Consensus, and Disagreements
Originally published by Financial Minds, translated by ACCEPT
Potential economic growth rate is of great significance for medium and long-term economic development planning and public policy making. The forecasts on China's potential economic growth rate vary a lot in the literature, due to differences in measurement methodology, premise assumptions, and parameter selection. In general, most of the forecasts for the year 2025 fall in the range of 5%-6.5%; most of the forecasts for 2035 fall in the range of 4%-5%; while the forecasts for 2050 roughly fall in the range of 2.5%-4%. If it is to reach the median level of the high-income countries classified by the World Bank by 2050, the Chinese economy needs to maintain an average annual growth rate of more than 4.1% in the next three decades. Existing literature shows that the potential growth rate of the Chinese economy can meet this requirement. We summarize the consensuses as well as the disagreements in the literature. The consensuses constitute the fundamentals for the future growth prospects of the Chinese economy, while the disagreements mean uncertainties and requires further observation and in-depth research. Economic growth is essentially the reflection and outcome of human economic activities, so that one should avoid the rigid attitude of mechanism when reading the various calculated numbers of potential economic growth rate. The importance of economic growth management is increasing rather than decreasing in China for a period in the future: firstly, to ensure that the actual economic growth does not deviate from the potential growth excessively, avoiding magnifying the output gap; secondly, to create conditions to promote the potential growth momentum. The former can be achieved mainly by short-term countercyclical adjustment policy tools, while the latter should be achieved by deepening structural reforms. In the last, this article puts forward the six key areas of reform that are most urgent and effective for promoting the potential economic growth momentum at current stage for China.
Key words: economic growth; potential growth rate; total factor productivity