International experience has shown that fiscal policy can play a leading role in promoting a shift toward a more inclusive economic model, balanced income distribution, and improved living standards.
No one can say that the second largest economy in the world is trapped. Decades of structural change and rapid growth allowed for a swift transition from a low-income to a middle-income country. The challenge today lies in moving up to higher-income status. How could the People’s Republic of China (PRC) avoid the trap?
Aging can adversely affect economic performance, demanding changes in social and economic policies to address the challenge. While the best-known dimension of aging relates to fiscal sustainability due to spiraling health care and pension costs, the repercussions are wider. More worryingly, aging will ultimately constrain economic growth because labor supply shortages result in lower GDP growth in the absence of increases in total factor productivity.
A well-developed services sector plays a major role in improving production efficiency and promoting technical progress and innovation. The services sector has expanded rapidly in the People’s Republic of China (PRC) since economic reform was launched in 1979, and particularly after PRC joined the World Trade Organization in 2001. However, the size of the sector as a share of GDP appears to be significantly smaller than expected based on PRC's income level and development stage.
