China's Economic Slowdown under Supply-Side Perspective

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 demandside 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.