After decades of hyper growth, China's economy has slowed significantly in recent years, causing widespread anxiety both within and outside the country. Although economists have not reached a consensus about China's growth potential, it is undeniable that the country has switched gears toward a “new normal” of moderate growth amidst ongoing structural change. To assess China's growth performance and prospects, this study modifies Masahiko Aoki's analytical framework of a unified growth theory into a multi-sector model and applies it to identify the sources of China's per capita income growth in recent decades. The analysis confirms Aoki's early observation that China entered the so-called “Kuznets phase” of development in the 1980s, which then became overlapped by the H-phase, in which human capital–based growth is characterized by high labor productivity growth. This study provides evidence that China's labor productivity growth has been predominantly driven by fixed capital formation. It also reveals that the Kuznets effect (with its labor reallocation effect) has now passed its peak and is fading away. The most alarming finding is that net total factor productivity (TFP) growth in the latest period has slowed to a near halt. This trend is particularly worrisome given that China has exhausted its past demographic dividend and its industrial structure has evolved to the end of industrialization stage. Meanwhile, demographic projections clearly indicate that China has entered what Aoki defined as the development phase of “post demographic transition.” Whether China can reverse the downward trend of TFP growth will determine how soon it can achieve the goal of becoming a high-income developed economy.

Factor mobility plays an important role in the convergence of regional income levels. This paper examines the role of labor mobility in China's regional economic development in the context of phases of demographic transition and the existence of institutional barriers. Our findings show that the two most important sources of interregional income disparity are per worker capital stock and technology level. The fact that the richest provincial economies are at the later phase of demographic transition provides a major reason for why those economies have accumulated higher per worker capital stock and achieved higher productivity levels. We also discover that regional per capita income levels have not displayed convergence since the mid 1990s. Two observations explain this phenomenon. One observation is that capital and labor movements have played only a limited role in equalizing their marginal returns across regions despite the fact that labor mobility has substantially strengthened this role since 2000. The other observation is that the impact of demographic changes on income growth has been distinctly uneven between the rich and poor regions. This phenomenon can be attributed to some particular features of China's interregional labor migration.