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China’s Economic Slowdown under Supply-Side Perspective
Cai Fang
The Chinese Academy of Social Sciences, Beijing, China
Abstract: This paper creates an analytical framework for ongoing China’s economic
slowdown and reveals the major factors affecting potential growth rate. First, proceeding
from the factors that led to a decline in China’s potential growth rate, this paper
demonstrates that the slowdown since 2012 is not caused by demand-side shocks but is
a natural result of the demographic transition and the change of economic development
stage that stemmed from supply-side factors. It is therefore suggested that the demand-
side perspective for cyclical analysis must be abandoned and the supply-side perspective
for growth analysis ought to be followed. Secondly, this paper argues that it is theoretically
unfounded and empirically unconvincing for existing literature based on the growth
perspective to simply apply the statistical pattern of “regression towards the mean” to
forecast China’s growth outlook and thus arrive at pessimistic conclusions. On this basis,
this paper identifies a host of initiatives that can significantly increase potential growth
rates and proposes policy recommendations for deriving reform dividends from supply-side
structural reform.
Krefeoyrwmords: growth slowdown, potential growth rate, supply-side, dividends of structural
JEL Classification Codes: O40, O38, L16
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