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China's declining business dynamism

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  • Diego A. Cerdeiro
  • Cian Ruane

Abstract

We document five novel facts about the dynamism of Chinese manufacturing firms between 2003 and 2018. We show that: (i) the revenue and capital shares of young firms have declined, (ii) life‐cycle growth of firm revenues and assets has declined, (iii) life‐cycle growth of process efficiency / product quality and investment in intangibles has declined (iv) younger firms have higher capital productivity than older firms, with the gap increasing over time, and (v) the dispersion of capital growth and the responsiveness of capital growth to capital productivity have both declined. Using a simple model, we estimate that the lower life‐cycle productivity growth of young firms reduces manufacturing productivity growth by 0.8 percentage points annually, and worsening allocative efficiency of capital between young and old firms reduced manufacturing total factor productivity by 1.25% between the early 2000s and late 2010s. We find that business dynamism is weaker in provinces where state‐owned enterprises account for a larger share of the capital stock. Le déclin du dynamisme commercial de la Chine Nous documentons cinq faits nouveaux concernant le dynamisme des entreprises manufacturières chinoises entre 2003 et 2018. Nous montrons que (i) les parts de revenus et de capital des jeunes entreprises ont diminué; (ii) la croissance du cycle de vie des revenus et des actifs des entreprises a diminué; (iii) la croissance du cycle de vie de l'efficacité des processus ainsi que de la qualité des produits et de l'investissement dans les actifs incorporels a diminué; (iv) les jeunes entreprises ont une productivité du capital plus élevée que les entreprises plus anciennes, l'écart augmentant avec le temps; (v) la dispersion de la croissance du capital et la réactivité de la croissance du capital à la productivité du capital ont toutes les deux diminué. À l'aide d'un modèle simple, nous estimons que la croissance plus faible de la productivité des jeunes entreprises au cours de leur cycle de vie réduit la croissance de la productivité manufacturière de 0,8 point de pourcentage par an, et que la détérioration de la répartition efficiente du capital entre les jeunes et les anciennes entreprises a réduit la PTF manufacturière de 1,25 % entre le début des années 2000 et la fin des années 2010. Nous constatons que le dynamisme des entreprises est plus faible dans les provinces où les entreprises d'État représentent une part plus importante du stock de capital.

Suggested Citation

  • Diego A. Cerdeiro & Cian Ruane, 2024. "China's declining business dynamism," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(3), pages 726-752, August.
  • Handle: RePEc:wly:canjec:v:57:y:2024:i:3:p:726-752
    DOI: 10.1111/caje.12726
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