China's Declining Business Dynamism

February 18, 2022

Preview Citation

Format: Chicago

Diego A. Cerdeiro, and Cian Ruane. China's Declining Business Dynamism, (USA: International Monetary Fund, 2022) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

After impressive growth in the 2000s, China's productivity has more recently stagnated. We use firm-level data to analyze productivity and firm dynamism trends from 2003 to 2018. We document six facts that together show a decline in China’s business dynamism. We show that (i) the revenue share of young firms has declined, (ii) the life-cycle growth of young firms relative to older incumbents has slowed, (iii) weaker life-cycle growth can be explained by slower productivity growth and weaker investment in intangibles, (iv) younger and smaller firms are more capital constrained than their older and larger counterparts, (v) the responsiveness of capital growth to the marginal product of capital has declined, and (vi) large productivity gaps between SOEs and private firms persist. We find that business dynamism is weaker in provinces where SOEs account for a larger share of the capital stock. Our results suggest that declining private business dynamism is an important factor in explaining China's sluggish TFP growth and that SOE reform could boost productivity growth indirectly by stimulating business dynamism.

Subject: Aging, Capital productivity, Economic sectors, Population and demographics, Production, Productivity, Public enterprises, Total factor productivity

Keywords: Aging, Business dynamism, Business dynamism., Capital productivity, China, China's productivity, Dynamism trend, Growth, Life-cycle growth, Productivity, Public enterprises, SOE reform, Total factor productivity, Total factor productivity

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/032
Stock No:

WPIEA2022032
ISBN:

9798400200359
ISSN:

1018-5941

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