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China’s Productivity Convergence and Growth Potential—A Stocktaking and Sectoral Approach

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  • Min Zhu
  • Ms. Longmei Zhang
  • Daoju Peng

Abstract

China’s growth potential has become a hotly debated topic as the economy has reached an income level susceptible to the “middle-income trap” and financial vulnerabilities are mounting after years of rapid credit expansion. However, the existing literature has largely focused on macro level aggregates, which are ill suited to understanding China’s significant structural transformation and its impact on economic growth. To fill the gap, this paper takes a deep dive into China’s convergence progress in 38 industrial sectors and 11 services sectors, examines past sectoral transitions, and predicts future shifts. We find that China’s productivity convergence remains at an early stage, with the industrial sector more advanced than services. Large variations exist among subsectors, with high-tech industrial sectors, in particular the ICT sector, lagging low-tech sectors. Going forward, ample room remains for further convergence, but the shrinking distance to the frontier, the structural shift from industry to services, and demographic changes will put sustained downward pressure on growth, which could slow to 5 percent by 2025 and 4 percent by 2030. Digitalization, SOE reform, and services sector opening up could be three major forces boosting future growth, while the risks of a financial crisis and a reversal in global integration in trade and technology could slow the pace of convergence.

Suggested Citation

  • Min Zhu & Ms. Longmei Zhang & Daoju Peng, 2019. "China’s Productivity Convergence and Growth Potential—A Stocktaking and Sectoral Approach," IMF Working Papers 2019/263, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/263
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    References listed on IDEAS

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    Cited by:

    1. Loren Brandt & Johannes Van Biesebroeck & Luhang Wang & Yifan Zhang, 2023. "Where Has All the Dynamism Gone? Productivity Growth in China's Manufacturing Sector, 1998-2013," Working Papers tecipa-759, University of Toronto, Department of Economics.
    2. Yang, Mengjun & Zheng, Shilin & Zhou, Lin, 2022. "Broadband internet and enterprise innovation," China Economic Review, Elsevier, vol. 74(C).

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