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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