China's declining business dynamism

We document five novel facts about the dynamism of Chinese manufacturing firms between 2003 and 2018. We show that: (i) the revenue and capital shares of young firms have declined, (ii) life-cycle growth of firm revenues and assets has declined, (iii) life-cycle growth of process efficiency / product quality and investment in intangibles has declined (iv) younger firms have higher capital productivity than older firms, with the gap increasing over time, and (v) the dispersion of capital growth and the responsiveness of capital growth to capital productivity have both declined. Using a simple model, we estimate that the lower life-cycle productivity growth of young firms reduces manufacturing productivity growth by 0.8 percentage points annually, and worsening allocative efficiency of capital between young and old firms reduced manufacturing total factor productivity by 1.25% between the early 2000s and late 2010s. We find that business dynamism is weaker in provinces where state-owned enterprises account for a larger share of the capital stock.