The ‘new’ normal is ‘old’ in China: Very late catching up and return to the (pre-WTO) old normal

The recent slowdown in Chinese growth is often viewed as a new (lower) growth normal. The prior three decades of catching-up-based accelerated growth would be followed by regression to the world mean growth (Prittchett and Summers, 2014). While other observers view this slowdown as a mere temporary deviation from the previous trend (Justin Lin) a consensus seems to exist on the persistence of accelerated growth during the previous three decades, as documented in official Chinese macroeconomic activity data. Increasing doubts have been raised on the reliability of such data in the most recent period (the slowdown would be much larger than officially reported) which make necessary to reassess the validity of the three-decade long episode of accelerated growth to determine if this was indeed China’s old normal. Second in order to account for the intermingling of trend and cycle (typical of emerging countries, Aguiar and Gopinah, 2007) we use a parametric regime-dependent approach to determine the timing and magnitude of growth phases. We find that contrary to conventional wisdom, accelerated catching-up industrial growth in China did not last thirty years after the reforms but started only with WTO entry in the early 2000s, and was twice shorter, but faster, than in Japan or South Korea. The ‘old’ normal (moderate) growth, typical of the 1980s and 1990s, resurfaced after 2010.