A Study On The Reasons Of China’s Economic Growth Slowdown

Since the 2008 International Financial Crisis, Chinese economy has slowed down evidently, moving from high rate growth to high-middle rate. However, academics have not reach a consensus about what caused this turning: the drop of long-term potential growth rate or just a recession in the short term triggered by exogenous shocks. Hence, calculating the recently potential GDP growth rate and output gap has vital practical significance to us in the term of understanding the current economic downward pressure and employing proper macro-control policies in China. This dissertation manages to calculate the potential GDP growth rate and output gap in China from 1978-2014, and to compare the performance of 5 different kinds of statistical filters. Furthermore, statistical description and econometrics regression models have been used to scrutinize the dynamic movement of those factors, which can influent potential GDP growth rate.The following conclusions can be drawn from this dissertation:(1) Since 2008, the potential GDP growth rate has dropped dramatically, meanwhile the output gap also changed from positive to negative, which means the slowdown in economic growth observed in China since 2008 results from the conjunct effects of the drop of long-term potential growth rate and a recession in the short term triggered by exogenous shocks.(2) Since 2008, the growth of three major factors(i.e. labor, capital and TFP) have all deteriorated: Firstly, China’s population is aging quickly, the old age dependency ratio is climbing but the portion of young labor force aged from 20 to 29 is declining; Secondly, since 2000, an upsurge can be observed in the growth rate of China capital stock. This is connected to the 3 times increase in ICOR from 2008 to 2014, which means the marginal output of capital has hit its lowest point in the nearest 30 years. Thirdly, the growth rates of TFP in more and more provinces in China have turned from positive to negative.Based on the above conclusions, to improve China’s economic growth rate, this dissertation suggests to reform the pension system for increasing labor participation rate; to renew our economic institution for boosting TFP growth rate; and to accelerate the reform of state-owned enterprises and strengthen the market-oriented quality in these enterprises for improving the efficient of those investments conducted by them.