In the literature, capital stock statistics are usually adjusted for capacity utilisation by
means of inventory data, unemployment statistics or power utilisation rates (Jorgenson and
Griliches, 1997). However, in China, there is no direct measure of capacity utilisation
available over the period 1952-2005. Hence, we obtain smoothed TFP series by applying the
widely used Hodrick-Prescott (H-P) filter. In summary, the H-P is a linear filter suggested by
Hodrick and Prescott (1997) which removes the cyclical components of the long run path of
the residual. It proceeds by decomposing the original series (yt) into two components: long
term trend component (gt) and cyclical component (ct)), that is