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 academic attentions despite no consensus has been so far reached for its substitutability. The sources of the China’s economic miracle have been perceived as a result of rapid structural change, effective catching up and effective exploitation of comparative advantage by some (e.g. Holz 2008), and as a result of massive inward FDI and export-led growth by others (e.g. Whalley and Xin 2010). While the former school believes that China’s growth pattern is sustainable for at least for another two to three decades, the later school is suspicious on its sustainability when the demand for the Chinese exports shrinks during the global economic crisis. The pessimistic view is getting popular with the appreciation of RMB accelerated since the second half of 2010. In a basis of a detailed 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 continued depreciations of the RMB by an annual rate of 4 percent up to 2015 when a new value of 5.016 is reached could be disastrous. As a result, the past experience of high growth rate could be significantly reduced. Alternatively, a deepening in reforms in the domestic economy, characterized as increases in government purchases in the domestic market, and encouraging both domestic demand and exports could relieve some of the pressures of RMB appreciation, but the expansionary fiscal policy itself may not be sufficient to sustain the past economic experience.
Sixth Biennial Conference of Hong Kong Economic Association. Proceedings of the Sixth Biennial Conference of Hong Kong Economic Association (Tianjin, China 17-19 December, 2010)