Which Sectors Really Matter for a Resilient Chinese Economy? A Structural Decomposition Analysis

Abstract

This study explores the structural effect of economic resilience with a case of China by examining the extent to which the major economic sectors contribute to the relative resilience of China’s overall economy. By applying a time series analysis, we use the Hodrick–Prescott filter to delineate China’s national economy on a quarterly basis and reveal different performances in responding to two recent economic crises in 1997 and 2008. Using quarterly data pertaining to eight economic sectors (including agriculture, industry, and major service sectors) and the national GDP from 1993Q1 to 2017Q2, we examine their effects on China’s economic resilience by simulating the responses of the national economy to a unit shock from each sector. Results show that the construction, real estate, and financial services have the greatest potential to “disturb” the national economy whereas the industrial sector has the greatest potential to “stabilize” it. The findings correspond with the understanding that extensive infrastructure development and the real estate boom have driven China’s rapid urban development and created economic prosperity, whereas the sectoral decomposition of economic resilience compels a critical reflection on the risks of this growth model.