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 30 years tend to diminish from 2010. The present paper estimates the average annual growth rate of potential output to be 7.2 percent 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.