| Summary: | China’s manufacturing industry has registered phenomenal development in the past 40 years, which has become the most remarkable aspect of China’s economic miracle. In this article, we interrogate labor productivity growth mechanisms in that industry during 1998–2007. Specifically, we assess the relative importance of efficiency, technology, and capital deepening changes in the growth process. Methodologically, we employ a nonparametric tripartite decomposition while controlling for technology and ownership heterogeneity using the concept of metafrontier. We find that most of the productivity growth was driven by capital deepening (125.60%), followed by technology progress (62.47%), and a small fraction (11.23%) was due to efficiency improvement. We also demonstrate strong productivity convergence in China’s manufacturing industry, which was driven by technology change and capital deepening effects. These results suggest that China’s overall industry development benefited from market mechanism in resource allocation and technology diffusion, but further improvement is possible. Finally, we point out that China’s industry can still benefit from capital accumulation in the near future but long-term productivity growth must be based on technology progress.
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