Setting China’s Growth Target Based on the Potential Growth Rate

Different from other methodologies for the forecasting of China＇s economic growth rate, this paper forecast of future potential growth rates from the end of China＇s demographic dividends, and then identified it as a growth target. Official promulgation of non-binding targets will guide social expectation, assist in government policy-making, boost confidence in consumers, and provide guidance for producers and investors. Based on our estimation results, we suggest that during the 13th Five-Year Plan period, a GDP growth target between 6. 5% and 7% would be appropriate.

Transition from Demographic Dividend to Reform Dividend:——Simulation of China's Potential Growth Rate

Due to diminishing demographic dividend characterized by a falling workingage population and rising dependency ratio, China's long-term potential growth rates will keep declining, likely to be a mere 6.6% during the 13 th Five-Year Plan period(2016-2020). China's economic growth sustainability hinges upon its transition from the previous dependence on demographic dividend to the future reform dividend. In the growth accounting equation, we have simulated various reform initiatives and arrived at the following findings. First, although both the labor participation rate and TFP can increase China's potential growth rate, the former will only achieve a short-term growth effect, which will diminish in the long run. By contrast, the growth effect of TFP demonstrates the tendency of continuous increase. This further indicates that China's economic growth will increasingly rely on TFP improvement instead of traditional factor input. Second, different from the diminishing growth effect of enrolment rate, training may play a pivotal role in human capital development to significantly enhance potential growth rates. Third, if all reform initiatives can achieve their expected effects, integrated reform dividends may reach one or two percentage points of China's potential growth rate.

Supply-Side Structural Reforms and China's Potential Economic Growth Rate

This paper examines the effect of supply-side structural reforms on China＇s potential economic growth rate in the coming decade according to the data the authors have gathered. Under the rapid growth scenario with the implementation of supply-side structural reforms, China＇s potential economic growth rate will reach an average of 6.5% and 5.8% respectively in the 13th Five-year Plan （2016-2020） and 14th Five-year Plan （2021-2025） periods. These rates are 0.2 and 0.3 percentage points higher, respectively, than that under the baseline scenario with the inertia of historic trends. In implementing supply-side structural reforms, China must transform governmental functions, break monopolies, create a comprehensive competitive market environment, foster the creation of pro-innovation mechanisms, refocus on quality and efficiency, and raise capital utilization and labor productivity.

China’s Potential Economic Growths during 2015-2025 under Different Scenarios~

China has entered a crucial period of further growth and restructuring that will last until 2025. Based on a review of the major factors affecting China＇s potential economic growth, this paper has created an integrated economic system model consisting of system dynamics, econometrics, and input-output for the forecast of China＇s economic size and structure by 2025. Analysis shows that prior to 2025, China will be able to maintain a potential annual economic growth rate of 5.7%-7.2%. Faced with an international environment of a possible slowdown of advanced economies and diminishing demographic dividends, China needs to further expedite its urbanization process, enhance R＆D and education spending, increase total factor productivity （TFP）, vigorously develop the tertiary sector, and expand consumption in order to achieve the optimistically estimated growth of 6.6%-7.4% during the period of 2015-2025. Economic growth should be accompanied by the upgrade of industry structure and improvement of investment and consumption structures.

China’s Proactive Fiscal Policy

In contrast to the traditional Western approach to macro-fiscal management,China’s proactive fiscal policy is founded on a people-centered development philosophy and,with distinctive Chinese characteristics,is a significant policy innovation of macroeconomic management in the Chinese modernization.Although there are notable distinctions between the Western“Keynesian”and the“nonKeynesian”schools of thought,both of these approaches’core policy goals and methodological roots are the same,composing the traditional Western macro-fiscal approach.This approach faces increasing real dilemmas.China’s proactive fiscal policy,however,places greater emphasis on future potential growth rates in addition to equilibrium between supply and demand,achieving a fiscal policy transformation with a new approach.In this paper we argue that with such a new approach,China should reconsider the nature and reasonable level of the fiscal deficit,the function and risk assessment criteria of government debt,the scope and effects of reductions in taxes and fees,its approach and focus of demand management,and the costs and resulting efficiencies of policies in order to develop a new fiscal policy paradigm that is more in line with its stated goals.

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 shock.s＇ 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 demand- side 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 unjounded 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 foom supply-side structural reform.

The New Normal from the Perspective of Macro History and Grand Logic of China's Economic Development

This paper attempts to explain the "new normal" of China's economic development put forward by XI Jinping, the General Secretary of the Central Committee of the Communist Party of China, from three perspectives. First, as the new normal is a natural phase of long-term development in the country's renaissance, recognition of it helps policy-making to hold a historical perspective and maintain a patience in the face of growth slowdown. Second, the new normal as the logic of China's economic development underlines the necessity and urgency of transforming growth patterns and growth drivers. Third, different from the "new mediocre" of the world economy, the new normal reveals great potentials of sustainable growth of the Chinese economy that must be tapped through structural reforms.

Population Change and Resulting Slowdown in Potential GDP Growth in China

As a result of the shrinking working age population （aged 15 to 59 years）, all factors that have driven China＇s rapid economic growth over the past 30years tend to diminish from 2010. The present paper estimates the average annual growth rate of potential output to be 7.2percent over the 12th Five-year Plan period and 6.1 percent over the 13th Five-year Plan period. Future sustainable growth requires furthering economic reform in related areas to enhance potential growth. This paper simulates two scenarios in which both an increase in labor force participation and improvement in total factor productivity can significantly enhance the potential GDP growth rate. Relevant policy implications are discussed.

Proactive Fiscal Policy:The New Logic of China's Practice

China’s proactive fiscal policy adheres to the development ideology centered around the people and differs from the traditional Western logic of macro-fiscal policy.It bears distinct Chinese characteristics and represents a significant macroeconomic governance policy innovation in China’s process of modernization.Despite the considerable differences between the perspectives of the Keynesian tradition and the non-Keynesian tradition,their policy objectives and methodological foundations are broadly similar,constituting the traditional Western logic of macro-fiscal policy.Currently,this logic is facing increasing practical challenges.In contrast,China’s proactive fiscal policy not only aims to restore supply-demand balance and potential growth levels but also emphasizes enhancing future potential growth rates,marking a transformation from the traditional Western logic to a new logic.It is essential to emphasize that under this new logic,forming a new fiscal policy paradigm requires a reevaluation of the nature and appropriate scale of fiscal deficits,the role and risk measurement standards of government debt,the space and effectiveness of reduction of taxes and administrative fees,demand management methods and priorities,as well as policy costs and efficiency,among other fundamental categories.

Haste Makes Waste： Policy Options Facing China after Reaching the Lewis Turning Point

This paper provides a framework for assessing the health of China＇s macro economy and the sustainability of economic growth by combining supply-side and demand-side factors and by considering their relationship at different stages of development. As the Chinese economy passed through its Lewis turning point, weakened supply-side factors caused its growth to slow. The increasing concern regarding the economic slowdown has induced both the central and local governments to implement various stimulus plans through instruments of macroeconomic, industrial and regional policies. By examining where the imbalances of the Chinese economy really lie and investigating the determinants of the current slowdown and of the enhancement of the potential growth rate, the present paper suggests that the best path of action for the Chinese Government is not to stimulate growth through demand-side factors but to increase the potential growth rate through reforms in certain key areas.