China's economic engine is shifting from raw volume to productivity
In short: After decades of explosive growth, China is entering a new era. With its population aging and the working-age demographic shrinking, Beijing is pivoting away from simple capital accumulation toward total factor productivity to sustain its position as the world's second-largest economy.
The Chinese economic miracle was built on massive structural shifts. Between 1992 and 2007, the nation saw some of its fastest growth by moving workers into higher-productivity sectors. A pivotal moment occurred between 2002 and 2007, when over 52 million agricultural workers transitioned into manufacturing and labor-intensive services. This reallocation alone contributed 2.4 percentage points to overall productivity growth, with more than half of those gains coming from the manufacturing sector.
Today, the landscape is different. China's economy hit around 134.9 trillion yuan (roughly US$18.8 trillion) during 2024, representing nearly two-thirds of what the United States produces. However, growth has cooled significantly since the early 2010s. The government’s 2026 Work Report confirmed a 5 per cent growth rate for 2025 and set a target of 4.5 to 5 per cent for 2026—the lowest annual goal Beijing has established in decades.
To navigate this slowdown, China is facing a demographic squeeze as its population ages and the working-age population has been falling for over a decade. While capital accumulation was once the primary driver, the focus is shifting toward total factor productivity. To enhance how resources are distributed, specialists argue that necessary systemic changes include fighting corruption, granting private firms fair opportunities, and removing state monopolies.
The path forward involves balancing high investment rates with a more sustainable growth model. By strengthening social safety nets to reduce the savings rate and addressing significant underemployment in rural areas, China aims to mitigate unfavorable demographics while converging toward the economic levels of the world's most advanced countries.
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Sources
- Summary by Intellect · source: How China Is Restarting Its Economy
- Also: From rapid growth to slowdown: how structural change reshaped China’s economy - Cambridge Industrial Innovation Policy
- Also: www.oecd.org — China Economic Snapshot
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