China’s Growth : Can Goldilocks Outgrow Bears?

The paper analyzes the recent growth dynamics in China, evaluating both cyclical positionsand long-term growth prospects. The analysis shows that financial cycles play a moreimportant role than traditional inflation-based cycles in shaping the dynamics of growth.Currently, the 'finance-neutral' gap—our measure of the financial cycle—is large andpositive, reflecting imbalances accumulated in the economy since the Global FinancialCrisis. A period of slower growth is therefore both likely and needed in the near term torestore the economy to equilibrium. In the medium term, growth will slow as China movescloser to the technology frontier, but a steadfast implementation of reforms can ensure thatChina follows the path of the "Asia Tigers" and achieves successful convergence tohigh-income status.