External Demand Decline-caused Industry Collapse in China

Industry collapse has become an importantphenomenon in China＇s recent economic growth fluctuation. This paper develops a simple model to analyze this phenomenon. Our analysis focuses on an external demand decline-caused industry collapse. The model reveals that the combination of large-scale decline in external demand with a horizontal domestic supply curve causes the domestic export industry to undergo a sharp decrease in output in a short period of time, which further leads to a sharp decline in employment. The conventional stabilization policy is less effective in coping with this sudden industry collapse. The Chinese Government needs to formulate an appropriate structural industry stabilization policy to cope with the sudden industry collapse, and, in particular, to implement a direct employment aid program to deal with unemployment resulting from the industry collapse.

Export fluctuation and overcapacity in China’s manufacturing industry--The inspection of the causes of excess capacity from the perspective of external demand

Intuitively speaking,there is an inverse proportional relationship between exports and overcapacity,which means in export’s busy season enterprises would expand output and improve capacity utilisation rate but control yields to avoid dull sale in slack season,causing exacerbated excess capacity.However,this is just the reflections of“sales effect”on overcapacity by export fluctuation.For some enterprises,there is indeed“competition effect”which may alleviate overcapacity because enterprises face even more fierce domestic competition for the sake of weak exports and may increase the utilisation load of existing capacity in order to cut costs.A test is conducted in this paper to verify the relationship between export fluctuation and excess capacity based on data of China's manufacturing industry from 2001 to 2013.The overall results indicate that export fluctuation is not the significant cause for excess capacity.In the small and medium-sized enterprises or in industries with higher proportion of non-state capital,the negative relationship between exports and excess capacity is more obvious,with“sales effect”taking a dominant position.On the other hand,under the influence of“competition effect”,the relationship between the two may be positive.Thus,external demand shocks exert different influence on the alleviation of excess capacity of different industries,and extensively driven exports may not have anticipated effect on the dissolution of the excess capacity.To regulate overcapacity with the aid of external market,a fair and orderly competition environment should be provided to the export subjects of different size and ownerships.

Building an open economic powerhouse driven by domestic demand

This paper,starting from an accounting of internal and external demand,first examines the relationship between the two under strict conditions and then points out the preferences of different countries for internal demand and external demand by relaxing the hypothesis gradually.On the basis of general theories,the evolution of the relationship between internal and external demand in China’s economic growth is studied to explain that expanding internal demand and establishing an open economic powerhouse driven by internal demand is a realistic choice.Specific suggestions on such aspects as investment,urbanization,income,consumption,and distribution are also proposed in the hope of being conducive to related future research.