Is the Chinese economic growth sustainable? a macroeconomic approach

With an annual growth rate of more than 9.6 percent in real terms over three decades from 1979 to 2010, China has emerged as the second largest economy and largest exporter in the world. The so called China’s economic miracle has attracted tremendous international attentions despite no consensus has been so far reached for its substitutability. In a basis of a brief review of the current literature on the sustainability of the China’s economic miracle and with the help of a simple macro-econometric model (the Fair Model), several economic scenarios are examined and forecasted up to 2020. According to the result of the experiments, the slowing down of the export-led growth, materialized with appreciations of the RMB by 25 percent from 2008, along with a tight monetary policy could be disastrous. As a result, the past experience of rapid economic growth rate is very hard to maintain. Alternatively, a deepening in reforms in domestic economy, characterized as increases in government purchases in the domestic market, and encouraging both domestic consumption and exports could relieve some of the pressures in RMB appreciation. However, neither an expansionary fiscal policy itself nor a domestic consumption stimulus would be sufficient to sustain the past economic experience, unless the country can afford a relative high rate of inflation.