Document Type
Paper Series
Publication Date
1-1996
No.
29
Abstract
Since the Communist government instituted centralized economic management and planning in the mid-1950s, the Chinese economy has gone through business cycles of sizable amplitude. The objective of this paper is to present a comprehensive explanatory framework for China’s business cycles and to reinterpret the cycles of the past four decades. The main feature of this framework is that the interaction between exogenous shocks, on the one hand, and central planners’ reaction through regulating fixed investment, on the other, generate business cycles. Exogenous shocks, whether of supply or demand, lessen or augment capacity pressure. Capacity pressure, an indicator of macroeconomic tension, rises when aggregate demand moves closer to or exceeds aggregate supply capacity, and falls otherwise. Planners react to changes in capacity pressure by adjusting the growth rate of state fixed investment. Because exogenous shocks appear continually, subsequent fluctuations in macroeconomic variables form business cycles whose core element is investment cycles. For ease of analysis, business cycles in this study are represented as recurring short-term fluctuations in the growth rate of aggregate output. The growth rate is referred to as the economic growth rate. This study covers the 1955-94 period and relies mainly on annual data.
In section II and III, I review the empirical regularities in China’s short-term macroeconomic behavior and the existing hypotheses about business cycles. My explanatory framework for China’s business cycles is introduced in Section IV. The dynamic property of China’s business cycles is investigated through a series of simulations in Section V. A chronological review of business cycles based on the explanatory framework follows n Section VI. The main findings are summarized in the final section.
Recommended Citation
Imai, H. (1996). Explaining China's business cycles (CAPS Working Paper Series No.29). Retrieved from Lingnan University website: http://commons.ln.edu.hk/capswp/48
Comments
CAPS Working Paper Series No.29 (1/96)