GROWTH,CAPITAL FORMATION AND TECHNOLOGICAL CHOICE:WHY HAS CHINA'S ECONOMIC GROWTH RATE BEEN DECLINING?

Why has Chinese economic growth rate been declining since the mid- 19907 This paper develops an explanatory framework based on neo-classical growth model.First,a negative correlation between capital-output ratio and the growth rate in post-reform era has been found and the paper provides an explanation.The paper argues that such a negative correlation is a result of insensitivity of capital formation to GDP growth,and thus the declining growth facing Chinese economy since the mid- 1990 may be largely accounted for by rapid capital deepening process and continuous declining return to investment.The implication of this paper is that the most important constraint facing China's future growth is the lack of an efficient investment institution and an efficient financial system.