An unproductive economyChina's gross domestic product growth rate of 7 percent may be a five-year low, but it's still the envy of most countries. However, experts say declining productivity is one of biggest tell-tale signs that China cannot maintain its current pace of growth.
"The capital-output ratio estimate for 2012 was 5.5:1, meaning that a capital input of $5.50 achieves only $1 [of output]. As economic logic insists, and the development experiences of other East Asian countries show, capital-output ratios at this level depict an enormously wasteful and capital-inefficient economy that is not sustainable," said the report.
Other experts agree: "For a middle-income country, capital productivity has dropped too much. This occurred mainly in the past ten years, reflecting the efficiency problems on China's development path," said Xiaolu Wang and Yixiao Zhou, authors of the 2014 academic paper 'Deepening Reform for China's Long-term Growth and Development.'
Furthermore, China will be unable to make the jump from middle-income to high-income status - a requirement for a dominant state- unless it improves the standard of living for citizens, the report added.
Doing so would require the allocation of more government funds to public goods such as social security and unemployment benefits, as well as healthcare, which only constitute 10.5 percent and 6.1 percent of the 2014 budget, respectively.
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