Analyzing the Causes of China's Slow Economic Growth Based on AD and AS Models

This paper tries to find out the reason for the slowing down of the Chinese economy based on both Aggregate Demand and Aggregate Supply models. It was triggered by the recent drop in China's economic growth rate, a phenomenon which has attracted many eyes. This paper identifies how such factors determine economic growth using the aggregate demand (AD) and aggregate supply (AS) models with respect to the macro-economy of China. This analysis identifies four key elements: consumption, investment, government expenditure, and net exports; it analyzes their different impacts on economic growth from demand and supply perspectives. Empirically, the results point to the continued growth in consumption and investment as core factors underlying China's slowdown. Besides the weak demand, deep-seated structural problems on the supply side -such as a drop in the growth of the labor force and low-capacity utilization in selected industries -further dragged down the economic growth. The findings from the study can, therefore, be used to inform policymakers that in the short term, there is a need to stimulate consumption and investment to spur demand. In the long run, however, reforms on the supply side of the economy are necessary for attaining sustainable economic growth.