Impact of external and internal factors on China’s economic growth

Abstract

Relevance. China is the dominant trading partner for many countries of the world. The new plan for the Chinese economic development in 2021–2035, based on the “double circulation” model, has become the subject of vigorous debate. Research objective. The study aims to identify China’s economic growth drivers before and during the COVID-19 pandemic and evaluate the impact of external and internal factors on China’s economic growth, taking into account future strategic changes. Data and methods. To identify the growth factors of GDP, we used a factor model based on GDP components by spending and the data provided by the State Bureau of Statistics of the PRC for 2007–2020. Results. Over the past decade, the contribution of GDP components that shape domestic demand has been steadily reduced. The decline in the share of net exports in GDP growth was replaced by the fluctuations in the external and domestic demand shares in the subsequent periods. The evaluations show that in 2020, 1% of 3.56% of China’s economic growth in GDP (in national currency) was provided by net exports and 2% of 3.56% was provided by an increase in gross capital formation. Conclusions. The increase in the contribution of net exports to GDP growth was caused not only by the growth of exports with a slowdown in the growth of imports but also by the redistribution of the shares of all factors and primarily by the sharp reduction in the share of the contribution of household expenditures to consumption. To promote domestic circulation through personal consumption, it is necessary for China to lower the savings rate, solve the problem of income inequality, and increase disposable income per capita.