The Nature of China's Economic Growth in the Past Two Decades

The Chinese economy has grown at record rates since the start of the market-oriented reforms in 1978. Motivated by the Asian productivity debate, this article provides an assessment of the role of total factor productivity in China's economic growth in the past two decades. We identify four main factors in the productivity growth: efficiency gain at the micro level; improvement in resource allocation; diffusion of technology through foreign direct investment; and improvement in infrastructure. We also argue that further state-owned enterprise and banking reforms, an emerging entrepreneurial class and greater research and development efforts are additional driving forces for the medium to long-term total factor productivity growth in China.