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The Chinese economy appears headed for a sustained period of slower growth such as Japan experienced a few decades ago. The Japanese economy decelerated sharply in the 1970s and 1980s when growth in its working-age population slowed and growth in investment spending downshifted. The Japanese economy started to stagnate in the 1990s when capital was misallocated to “zombie” companies.

The underlying drivers of long-run economic growth in China are no longer supportive of the supercharged rates of real GDP growth that the country achieved during the past few decades. The working-age population has already peaked, and investment spending has decelerated. Because China is not yet as economically developed as Japan was when that country experienced its growth slowdown starting in the 1970s, China should be able to shore up its productivity growth rate by continuing to adopt technologies that have been developed in more advanced economies.

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