Total factor productivity (TFP) is a crucial measure of economic performance and determines the extent of growth in the long run. It shows the contribution of different factors, such as labor, capital, and technology, in overall production. Hence, it is a strategic tool in economic policymaking, reflecting how efficiently the economy uses its resources. This article aims to explore the ways to improve TFP, especially in light of current economic challenges. We will discuss the key factors that influence TFP and look at various strategies to enhance it that governments and businesses could follow. By doing so, we aim to highlight the importance of TFP in achieving long-term sustainable growth and the role that all stakeholders can play to improve it.
Experts believe that China is on track to improve its total factor productivity (TFP), which is a primary metric of productive efficiency. China’s advancement in Chinese-style modernization, coupled with new drivers of high-quality development, are the measures that will add to the growth impetus. Some of the measures include increasing investment in science and technology, improving resource allocation, and enhancing the quality of education.
Liu Qiao, dean of the Guanghua School of Management of Peking University, organised a seminar that highlighted that although most countries experienced a drop in total factor productivity after they became industrialised economies, China might be able to take a different development path. Such a path could feature higher total factor productivity if the country could leverage its advantages and strengths to realise the re-industrialisation process. Additionally, as part of China’s pursuit of Chinese modernisation, the country could nurture new growth engines by deepening reforms and expanding low-carbon development. If China achieves its goal of modernisation by the scheduled date of 2035, the country’s total factor productivity by then will be around 2.5 percent to 3 percent, or at least 0.5 percentage points higher than the current level.
The scholar believes that many factors underpin China’s economic growth resilience and strengths, including ongoing industrial digitalisation and digital upgrades, China’s substantial manufacturing output scale, and its continuous improvement in resource allocation due to the deepening reform and high-level opening up. According to him, the country should intensify investments in industries and sectors that hold key positions in boosting high-quality development. Green development and digital economy may be relevant in this context. The government should also invest more in sectors that have low private returns but high social returns, such as education and basic scientific and technological research.
Furthermore, the scholar believes that China has relatively large fiscal policy room to increase government debt, which offers an alternative to offset significant impact on economic growth. It is critical for China to raise total factor productivity in pursuit of high-quality development, especially considering that the country experienced a decline in the gauge in recent years due to several challenges, including geopolitical issues, which harmed the country’s technological exchanges with advanced economies.
Total factor productivity is associated with technological discoveries and resource allocation efficiency. To raise the gauge, the country should enhance the socialist market economy system while advancing modernisation. It should also encourage spillovers of knowledge and diffusion of technologies from developed areas like the Yangtze River Delta region to the inner regions. Policymakers are expected to push for continuous improvement in China’s science and technology development system to encourage research and development activities by enterprises, especially technological innovations and discoveries by private businesses.
In conclusion, China is continuously seeking to improve its total factor productivity to boost its high-quality development goals. China’s advancement in Chinese-style modernisation, coupled with the nurturing of new growth engines and enhancing the quality of education, will help the country achieve this goal. Moreover, policymakers are expected to push for continuous improvement in China’s science and technology development system to encourage research and development activities by enterprises.
