Editors' Summary (Report on China's Banking Sector, Return on Investment and Industrial Productivity) (Editorial) (Conference Notes‪)‬

THE BROOKINGS PANEL ON Economic Activity held its eighty-second conference in Washington, D.C., on September 7 and 8, 2006. This issue of the Brookings Papers includes the papers and discussions presented at the conference. All three papers in this issue explore various aspects of the Chinese economy, which has grown rapidly in recent decades to become one of the world's largest. The first paper analyzes recent productivity growth in China and the prospects for China's economic catch-up with the international productivity frontier. The second paper estimates current rates of return on investment in China to gauge whether the country's high investment rate is sustainable. The third paper examines the state of China's banks and assesses the prospects for successful banking reform. DURING THE PAST QUARTER century of market-based reform, China's economic performance has been extraordinary. In 1978, at the outset of reform, China was the world's tenth-largest economy, with a GDP less than 6 percent that of the United States. By 2005, after two decades of growth averaging about 9 percent a year, it had become the world's fourth-largest economy at current exchange rates, with a GDP roughly one fifth that of the United States. If China's growth advantage continues, in twenty-five years China's economy will rival the U.S. economy in absolute size, although it will still have only a fraction of U.S. income per capita. In the first article of this volume, Gary Jefferson, Albert Hu, and Jian Su examine the rapid productivity growth underlying this performance, both to understand its sources and to inform judgments about its sustainability. They calculate levels and growth rates of productivity by sector, industry, and region and analyze rates of productivity convergence both within China and between China and the advanced economies of the world. This analysis leads them to discuss the institutional reforms they believe are needed to sustain China's rapid productivity growth in the future.