China’s Economic Growth, Global Economic Crisis and China’s Policy Responses (The Quaid-i-Azam Lecture)

As a result of opening and reform, China has maintained an annual average growth rate of 9.8 percent for nearly three decades. China’s growth is based on high savings and high investment. Its export promotion policy has also played a very important role in promoting economic growth. However, as a result of China’s growth pattern characterised by investmentdriven and export promotion, the Chinese economy also has been suffering from serious structural imbalances. Its high and ever-rising investment rate has created overheat and overcapacity in tandem. Its high dependency on external market makes its economy vulnerable to external shocks. The global financial crisis has hit the economy seriously and exposed the structural weakness of the economy. The dramatic fall of external demand led to dramatic slowdown of the economy. The Chinese government responded to the slowdown of the economy swiftly and forcefully. A four trillion Renmibi stimulus package and expansionary monetary policy have successfully stabilised the economy. However, the stimulate policy has worsened structural problems. China’s structure problems include high external dependency, high investment rate, deterioration of environment, widening income gap between different social group and between rural and urban areas, insufficiency in the provision of social goods and so on. Due to its strong fiscal position, there should be no problem with China to achieve a growth rate of 8 percent. At the same time, the Chinese government should be able to tackle its structural problems successfully so as to ensure the sustainability of China’s economic growth. JEL classification: G01, E44, E65 Keywords: Growth, Global Financial Crisis, Stimulus Package, Structural Adjustmen