Driving profitable growth: the productivity challenge in China

It is widely accepted that raising productivity will be critical if China is to keep growing and avoid the so-called ‘middle income trap.’

This report assesses how ready companies in China are for the challenge of productivity improvement, and sets out the key areas that high-performing companies will need to tackle to take their productivity performance to the next level.

China’s previous growth engines running out of steam

Growth in exports has slowed significantly in the past three years as a result of gloomy conditions in key markets in Europe and North America. Within China, demographic change, environmental concerns, and other imbalances are impelling China to alter the speed and nature of its growth.

This has coincided with a fall in China’s productivity growth.

Productivity on the government agenda

Companies can expect increasing pressure to raise productivity in coming years. The Chinese government’s industrial policy will give incentives to raise productivity, and penalize unproductive and wasteful companies.

Productivity will be driven by firm-level improvements

As the benevolent conditions of the past decade wane, productivity growth will increasingly have to come from improvements at firm level.

For companies, the challenge goes beyond simple cost cutting. If they are to continue to grow profitably, they will need to make much deeper and longer lasting improvements in their:

  • Management and operational practices
  • Use of technology
  • Application of innovation to their business

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