DUBAI – China’s economic slowdown is closely tied to a significant decline in productivity, driven by multiple factors such as a shift toward low-productivity sectors like real estate, demographic challenges, and inefficiencies in research and development. Despite government efforts to foster innovation and technological advancement, experts remain skeptical about reversing the productivity decline and achieving sustained growth.
China’s economic growth has dropped from 6.5% before the pandemic to just 4.6% now, with concerns that even this figure may be overstated, according to a report by Asia Times. As the economy stagnates, living standards remain far below those of developed nations, highlighting the nation’s economic struggles.
A key issue contributing to the downturn is the country’s declining total factor productivity (TFP), which measures how efficiently inputs like labor and capital are used to generate output. Official data indicates a fall in TFP over the past decade and a half, though this claim is debated. Nonetheless, there is widespread agreement that productivity growth has slowed significantly compared to earlier years.
Economist Paul Krugman attributes the slowdown to a shift toward real estate, a low-productivity industry, after the 2008 global financial crisis. China began investing heavily in the real estate sector, which has hindered overall productivity growth. Additionally, a 2022 analysis pointed to broader structural issues in China’s economy, such as inefficiencies in capital allocation and overreliance on a resource-driven growth model.
As China continues to face these systemic challenges, the question remains whether current policies can effectively spark the growth needed for long-term prosperity.