Enhancing Total Factor Productivity Through Comprehensively Deepening Reforms

Zhang Ping and Yuan Fuhua
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Zhang Ping: Chinese Academy of Social Sciences, Institute of Economics
Yuan Fuhua: Chinese Academy of Social Sciences, Institute of Economics

Chapter Chapter 3 in Exploration on China’s Economic System Reform under New Normal of Development, 2026, pp 29-52 from Springer

Abstract: Abstract Based on the economic growth calculation framework, the latest estimates show that the “structural slowdown” remains a serious challenge: (1) The growth of capital and labor supply will decline to single digits; (2) The industrial structure changes inefficiently; (3) The contribution of the total factor productivity (TFP) to economic growth has declined from about 30% at the peak growth period to the current 17%; (4) There is a shift in the distribution coefficients, with labor output becoming more elastic and capital output becoming less elastic; (5) As the people’s income increases, the percentage of food consumption in the consumption structure decreases, the percentage of material consumption and general service expenditure decreases, while the percentage of residents’ consumption in cultural, educational and lifestyle service sectors, such as the science, education, culture and health sector, sports sector and finance sector, increases rapidly. Only by breaking the current calculation and the present institutional barriers can we truly shift from the economic slowdown and downturn to the path of endogenous growth. Obviously, we should: (1) increase human capital while boosting the consumption of “broad-sense human capital”; (2) improve TFP, increase the innovation level and adjust the resource misallocation; (3) raise the productivity of the tertiary sector significantly, and thus enhance the overall consumption level; (4) We should further improve the level of income distribution to build a moderately prosperous society in all aspects. These rely on institutional reforms: (1) improve the development space and efficiency of the tertiary sectors through the reforms of the systems of the science, education, culture and health sector and other tertiary sectors; (2) correct resource misallocation and improve efficiency through the reforms of government administrative systems and state-owned enterprises supported by monopolistic, administrative or selective industrial policies;(3) promote a shift from a supply-oriented to a demand-oriented economy through the reforms that improve distribution and increases consumption.

Date: 2026
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DOI: 10.1007/978-981-95-2461-7_3

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