What Drives China’s Transformational Growth: Technology, Efficiency or Factor Cost?

He Xiaogang 1 and Zhang Ning 2

1 Institute of Industrial Economics, Jiangxi University of Finance and Economics, Nanchang, China
2 Institute of Poyang Lake Eco-economics, Jiangxi University of Finance and Economics

Abstract: With rising costs of capital, labor and energy, cost efficiency and cost management have become important questions confronting the next stage of China’s economic growth. By building a parametric cost frontier model using panel data, this paper investigates the drivers of economic growth transformation from a cost perspective. According to our research, among various effects triggering corporate cost variations and in addition to the expansion of production scale, the largest effect is from technological progress, followed by the effect of factor price adjustment and the effect of efficiency gains. Within the decomposition of factor price adjustment effect, the energy factor effect is the most significant. Furthermore, energy price fluctuations are likely to become major factors restricting saving-based growth. Further study reveals that both the ownership reform and opening up of SOEs are favorable to reducing the costs generated by inefficiency. This paper provides empirical evidence for the driving mechanism of saving-based growth transformation as well as empirical evidence to support to the further deepening of property rights and market-oriented reforms.

Keywords:  growth transformation, transformational growth, technological progress effect, factor price adjustment effect, effect of efficiency gains

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