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　　Based on the potentialgrowth rates between 1979 and 1994 and between 1995 and 2010 reckoned by CaiFang and Lu Yang (2013), the gaps of growth rates for these timeframes can becalculated by subtracting the average potential growth rates from the actual growthrates in the corresponding years. In these timeframes, China ’seconomic growth demonstrated three cycles of volatility, creating four troughsin 1981, 1990, 1999 and 2009, and the length of each cycle coincided with what wasconsidered the “Juglar Cycle.” As a result of shifting stage of development,the average potential growth rates will drop to 7.55% and 6.2% for the periodsbetween 2011 and 2015 and between 2016 and 2020, respectively. Following thesame method of calculation, there is barely any gap of growth rate in thecurrent slowdown (see the hollow circular curve tendency in Figure 3). However,if China ’seconomy is habitually considered to maintain the original level of growthwithout recognizing declines in potential growth rate, e.g., if the 10.34% rateduring the period between 1995 and 2010 is used as a benchmark, the gaps ofgrowth rate could be illusorily observed (see the results shown in the solidtriangular curve in Figure 3).

　　Gaps of growth rateare not unique to China but represent a subject of macroeconomics and a situation that needs to bedealt with in macroeconomic policy-making. For advanced economies, long-termgrowth trends can be seen as potential growth rates as their economic growth isnormally under the neoclassical steady state, and the gaps of growth ratestemming from faster or slower real growth are manifested as economic cycles.In this sense, frequent growth volatility is a cyclical phenomenon. Whennegative gaps of growth occur, attention is naturally drawn to the demand sidefor a way out. Despite contradictory arguments from different schools of macroeconomics,whenever the economy is in recession, governments and central banks are temptedto resort to fiscal or monetary policies or a combination of both to resistcyclical volatility.

　　The “real businesscycle theory” attempts to eliminate the boundary between cycle and growth,recognizing that productivity shocks could change the normality of growth rate.Yet this school of theory focuses on the negation of cycles caused bydemand-side shocks rather than differentiates between cyclical phenomenon andgrowth stages. While this theory deserves our attention is that cyclical andgrowth issues are interchangeable and interwoven, whether in terms of theory orpractice, it is necessary to classify slowdown into cyclical slowdown andchange of development stage, especially when China as a fast-growing andrapid-changing case is considered.

　　The lesson of Japan ’s “lostthree decades”, where the economic slowdown was seen as a demand-side problemin the 1970s when the country’s demographic dividends diminished, should be learned. In response to its slowdown,the Japanese government adopted an extremely loose macroeconomic policy andinterventionist industrial policy. Instead of boosting the real economy andinfrastructure, however, unleashed liquidity and broad money led toskyrocketing asset prices and unprecedented economic bubbles, which finallyburst and dragged the economy into recession. In tackling the recession afterthe burst of asset bubbles, the Japanese government continued to adopt stimuluspolicies that protected obsolete firms and created zombie firms, which took atoll on overall innovation and TFP (Hayashi and Prescott, 2002), bringing aboutvarious supply-side hurdles to potential economic growth.

　　For China , theeconomic slowdown since 2012 resulted from a falling potential growth rate as aresult of demographic transition or change in the stage of economicdevelopment. Therefore, there were no negative gaps of growth rate. Asdemonstrated in another article of author’s, the slowdown did not lead tocyclical unemployment and labor shortage continued to beleaguer China ’s economy(Cai, 2016). In approaching China ’sslowdown, macroeconomists should eye a longer horizon of growth instead of beingconfined to the traditional cyclical perspective. On the other hand, while theproblem facing us isa long-term growth phenomenon, there is no doubt that aneconomy could be struck by cyclical problems at any time, so we must stayvigilant and pay close attention to both changes in the development stage andcyclical volatility.

　　3. Convergence Perspective Has Missed China Story

　　Economists indeed approach China ’s slowdown from theperspective of economic growth. For instance, Pritchett and Summers (2014)considered that any growth rate above the average level is abnormal and has toregress towards the mean, which is understood to be the average growth rate of theworld economy. This methodology is based on the famous Galton’s Fallacy, i.e., the average height of the membersof an extended family cannot stay abnormal over a long period of time and tendto regress towards the average level of the overall population. The samestatistical pattern is followed in economic growth. According to their forecast, China ’seconomic growth will fall to 5.01% between 2013 and 2023 and further fall to3.28% between 2023 and 2033, i.e., what Pritchett and Summers referred to asthe “mean.”