How to Tackle the Slowdown of Potential Growth Rate in China?

The shrinkage of working age population at ages between 15 and 59 after 2010 will end the era of the high-speed economic growth in China. By revealing annual growth rate of potential output to drop to 7.2 percent in 2011-2015 and 6.1 percent in 2016-2020, the purpose of this paper is to draw policy implications of such slowdown. First, the government should not seek a growth rate above potential rate if they do not intend to see distortions in the economy such as macroeconomic instability, overcapacity, deviation from comparative advantage, and protection of inefficient firms. Second, the potential growth rate can be strengthened through institutions building and reorientation of public policy in various areas in order to spur labor mobility and productivity improvement.