Abstract

Using changes in the working age population, i. e. , those between 15 and 59, as a benchmark, its negative growth in China since 2010 indicates that the demographic dividends the country has been enjoying for years have begun to dissipate. Specific symptoms of this trend include the tightening up of labor supply, slowing growth rates for return on investment, and shrinking space for further resource reallocation for purpose of efficiency improvement, all of which being ultimately reflected in reduced potential rates of GDP growth. The actual GDP growth rates for 2012 and 2013 were 7.8% and 7.7%, respectively. These numbers represent a considerable drop from what had been the norm for the previous 30 years or so. This was not due to external factors, but rather to a decline in China's potential growth rate. The first appearance of the notion of“potential growth rate”in the government's official documents was in the 2013 Government Work Report, which specifically demanded that it be matched by the real GDP growth rate.

There are two possible ways to increase the potential growth rate under the condition of disappearing demographic dividends: one is by eliminating institutional barriers to the supply of factors of production, and the other is to shift from an economic model in which growth is driven primarily by investment to one in which growth is driven by improvement in total factor productivity. Both strategies require for their implementation the deepening of economic reform. Reform does not mean suppressing growth, but rather promises to bring solid and substantial reform dividends and swift increases in potential growth rates. Explaining this to relevant parties, from both a theoretical and a practical point of view, will help strengthen people's shared understanding of and commitment to reform, both of which being key to motivating the entire society to continue to push reform forward.

The government put forward at the 3 rdplenum of the 18 th National Congress of the Communist Party of China the general plan for deepening reform from a new starting point. Promoting reform in this way, that is, through top-down design and overall coordination, demands the government to change its functions, i. e. , to shift from direct involvement in economic activities to creating a macroeconomic policy environment conducive to competition, and to take on more responsibilities for social governance and providing basic public services. These changes would be the basis for creating a social environment in which the market's potential as a decisive force in resource allocation can be realized to the fullest. Together, changes in government function and in the role of the market will yield reform dividends, forge a new driver for the further deepening of reform, sustain economic growth, and help the country avoid the middle-income trap. China, the world's most populous country, is poised to accomplish the monumental feat of transitioning smoothly from being a middle-income to being a high-income country.