China's economic growth has sharply declined from 6.5% before the pandemic to just 4.6% as of January 1, 2025. This significant drop has raised concerns regarding the accuracy of these figures and the underlying issues affecting productivity [da383914]. A key factor in this slowdown is the declining total factor productivity (TFP), which has been a persistent problem since 2011. Economist Paul Krugman has attributed this decline to a shift in the economy towards the low-productivity real estate sector, which has been exacerbated by structural issues, trade tensions, and disruptions caused by the COVID-19 pandemic [da383914].
Demographic changes are also contributing to lower productivity levels, particularly the decline in the working-age population since 2010. As urbanization benefits begin to wane, the potential for economic growth diminishes, further impacting overall productivity [da383914]. Additionally, research and development (R&D) productivity remains low, especially within state-owned enterprises, which stifles innovation and efficiency [da383914].
China's export market is constrained, and household consumption accounts for only 39% of GDP, indicating a lack of robust internal demand that could drive growth [da383914]. In response to these challenges, President Xi Jinping has initiated various policies aimed at boosting productivity; however, these efforts face skepticism regarding their effectiveness [da383914]. The trajectory of China's economy remains uncertain as it navigates these multifaceted challenges.
In a broader context, the dynamics of productivity and job creation are also relevant to the ongoing discussions about economic strategies in both China and the United States. Michael Munger has argued that while job creation policies are often politically popular, they can lead to job losses in existing industries as markets tend to favor innovation and entrepreneurship [1a1a2f46]. This contrast is evident in the US, where productivity growth has recently exceeded 2% for five consecutive quarters, significantly higher than the pre-pandemic average [22a29556].
As the US economy continues to show resilience, advancements in artificial intelligence (AI) could potentially double the GDP growth rate, indicating significant opportunities for economic expansion [22a29556]. The path forward for both China and the US remains fraught with challenges, raising critical questions about the effectiveness of current policies in addressing the underlying issues affecting productivity growth.