Is China's Economic Growth Dependent on External Sector?

Abstract

This thesis examines the relationship between economic growth and the external sector in China. It proposes that external sector should be measured from external demand and supply, including foreign trade, investment, employment and technology. Based on this new numerical measurement, this paper argues that the external dependence of Chinas economy has been overestimated, and it is relatively lower than other Asian countries. Furthermore, a regression analysis was addressed on a cross-province panel, comparing the contribution of external and domestic sector to economic growth, and their variations before and after 2008. From the empirical evidence, this thesis suggests that Chinas economic growth has become more dependent on domestic rather than external sector since 2008. This transition can be explained by the resurgence of state owned enterprises, the weakening of foreign funded enterprises and the stimulus policy package to cope with global financial crisis.