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There has been continued debate over the sources of China’s remarkable growth over the last three decades. This paper tries to determine and quantify the sources of China’s impressive economic growth. It points out that some opinions argue that the reallocation of labour from agriculture and the rising investment rate rather than improvements in total factor productivity (TFP) are the key sources of the growth. The authors underline that the key to its analysis is the distinguishing between state and non-state components within the non-agricultural sector. As a result, the paper finds that if capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. 

The paper concludes:

• the contributions of the reallocation of labour from agriculture and the rising investment rate are modest
• the most important sources of growth are the rapid growth of TFP in the non-state non-agriculture sector and the reallocation of labour and other resources out of the state sector and into the non-state sector
• institutional constraints on resource mobility have weakened significantly, but the cost of the state sector is still in place; the less efficient state sector continues to absorb more than half of all fixed investment 
• rapid rising productivity growth within the non-agriculture sector needs in future analysis to get inside the black box and identify the sources of it
• the significant gains from reallocating resources to non-state sectorshould probably be the focus of China’s growth rebalancing strategy rather than a shift from investment to consumption 
• such a strategy would help China to restore the balance between investment and consumption while maintaining the remarkable growth performance it experienced in the last three decades

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