Nevertheless, it is difficult to separate cyclical elements

and external shocks from the long-term trend and to conclude that China’s potential growth rate really is 6-6.5 percent.

Many Chinese economists cite long-term supply-side structural factors-such as demographic agi

ng, environmental degradation, and a lack of progress on reform-to argue that China has simply en

tered a new stage of development, characterized by significantly lower potential growth rates.

Structural factors don’t explain falling growth rate

While this may be true-everyone in China agrees that 9-10 perce

nt annual growth rates are a thing of the past-there is no clear indication of how much Chin

a’s growth potential has actually declined. Long-term supply-side structural factors do not explain, for exam

ple, why the growth rate fell from 12.1 percent in the first quarter of 2010 to 7.4 percent in the third quarter of 2013.