The Reason of China's Economic Growth-Based on an Analysis of TFP Growth.

Abstract: Arithmetic average annual growth of China''s real GDP has reached 9.93 percent over the 30 year period since the start of reform in 1979 up to 2009. Numerous books and articles have been written in the past to try to Account for the emergence of such an economic titan. This paper aims at sorting out, quantitatively, factors that seem to have been the culprits of high growth. In assessing the major factors that seem to explain the past high growth, the standard approach in the literature has been the supply side growth accounting. Growth accounting has the merit of being able to show quantitatively the contributions of growths of capital and labor, and the increase in productivity that is not attributed to them (growth of total factor productivity). We shall conduct fresh calculation of this growth accounting, but do more along the way. In what follows, this paper first examines the growth accounting which is a standard method of attributing GDP growth to three sources of growth: capital, labor and total factor productivity (TFP).The second part of this paper attempts to an Analysis of TFP growth. We focus on education and financial development as very important determinants of the level of TFP. Our analysis above shows that there are two serious imbalances in the Chinese economy today. One is the weakness in personal consumption growth. The other is the non-declining share of the secondary sector (manufacturing). The Chinese government recognizes that these problems exist. As for the low consumption problem, Yang (2010) emphasizes the importance of increasing services consumption in his lecture text at the Communist Party School, but there is no prescription. The 11th Five-Year Plan aimed at promoting consumption, but failed. The coming 12th Five-Year Plan will give it another try, but the achievement will be very difficult. We see few signs of this current high growth regime changing, and high growth is likely to continue for a foreseeable future. Whether this is a blessing for China is something to be studied. [Copyright &y& Elsevier]