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International Monetary Fund. Asia and Pacific Dept

Pandemic 2. Estimated Impact of Social Spending on Household Consumption 3. Estimated Impact of Household Debt and Assets on Savings Rate 4. Income Inequality by Source and Region APPENDIX I. Data and Empirical Analyses LOCAL GOVERNMENT FINANCING VEHICLES REVISITED A. Introduction B. LGFVs: Large, Interconnected and Risky C. LGFVs’ Implications for Efficiency D. Rising Risks to Macrofinancial Stability E. Conclusions References CHINA’S DECLINING BUSINESS DYNAMISM A. Overview of Trends in Productivity Growth and SOE Intensity. B. Bottom

Cian Ruane

and Song, 2015 ) which allowed for productivity-enhancing resource reallocation (?). However, there remains substantial scope for SOE reform in China, with the SOE share of industrial assets remaining at almost 40% in 2019. This SOE presence could have important indirect effects on productivity if it reduces private sector dynamism. We explore this possibility by correlating measures of business dynamism with SOE intensity across provinces. We focus on two measures of dynamism: life-cycle growth of firms and the responsiveness of capital growth to the marginal

International Monetary Fund. Asia and Pacific Dept

boost productivity growth both directly through resource reallocation and indirectly by stimulating business dynamism . A. Overview of Trends in Productivity Growth and SOE Intensity. 1. After impressive growth in the 2000s, largely driven by the rapid growth of young private firms, China’s productivity has more recently stagnated . While this slowdown in aggregate total factor productivity (TFP) has also occurred in other countries, that China’s productivity deceleration in the post-GFC period has been particularly dramatic, with TFP rising by around 22 percent

Cian Ruane
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.
International Monetary Fund. Asia and Pacific Dept

percent gains Brandt et al. (2013) estimate for state vs. non-state capital reallocation, however they account for between-sector capital misallocation while we restrict our attention to within-sector misallocation. Factoring in such across sector differences in SOE intensity would imply larger gains. Given that aggregate TFP growth has averaged 0.6 percent between 2012 and 2017 (Penn World Tables), our results suggest that SOE reform could more than double the rate of TFP growth for five years—or likely more, if sectoral reallocation would be considered as well