Publication Date

January 1999

Publication Details

Harvie, C, China's Economic Growth Slowdown: Causes, Consequences and Policy Options Working Paper 99-1, Department of Economics, University of Wollongong, 1999.


During its reform era China has experienced, and become accustomed to, high rates of economic growth, and rapid jobs growth particularly in the rural collectives and, more recently, private enterprises. Strong fixed asset investment and consumer demand in conjunction with a strong growth of net exports, provided the foundations for this. However during the latter part of 1997, after four years of monetary austerity measures, there were worrying signs that the growth of the economy was slowing considerably, primarily from a weakening of consumer and investment demand. While the growth of net exports initially remained buoyant, this has become threatened by the financial crisis afflicting other East Asian economies. Such developments are of particular concern to China where jobs growth and social cohesion is paramount. It is widely perceived that the country must keep growth above 7-8% if enough new jobs are to be created to absorb the unemployed, and that without appropriate action by the authorities the economy will be dangerously close to this in the foreseeable future. This sharp economic slowdown will also threaten the government’s attempts to restructure the country’s SOEs as well as the debt laden state banks. It will have broader adverse implications for other Asian nations attempting to export their way out of their financial difficulties. The Chinese authorities currently face a severe problem of domestic deflation rather than inflation, while on the international front the country is playing a pivotal role, particularly with regard to the exchange rate, in maintaining currency stability within the Asian region. The paper briefly reviews recent macroeconomic developments in China, focusing upon the factors contributing to the economic slowdown. The consequences of such a slowdown in terms of unemployment, social unrest, attaining further economic reform of the state owned enterprises (SOEs) and banking sector, as well as broader regional implications, is analysed. Appropriate policy responses to increase growth and expand employment opportunities, while maintaining low inflation, will be identified and evaluated.