The global economic recession and challenges to China's export-led growth strategy

Abstract

The empirical analysis based GOP accounting suggests that external demand contributed 40% to the growth of the Chinese economy from 2003-2007. The collapse of exports and FOI due to the global economic recession threatens the sustainability of China's export-led growth strategy. China's experiences in coping with the Asian financial crisis-the first external shock suggest that, boosting private consumption such as housing demand performed a far more important role than fiscal stimulus. High unemployment and the biased income distribution toward the corporate constraint the consumption capacity of Chinese individual consumers. Rebalancing the growth path requires policies targeting job creation. Collecting dividends from SOEs to fund social safety nets will alleviate the income disparity and reduce precautious savings of households. For maintaining sustainable growth in the long term, investment in technology innovation and environmental protection should be strengthened.