Bubbles And China's Economic Growth

To the whole general economy, do the economic bubbles play a positive or negative role? A number of people regard them as rather evil, and are so much afraid of the destructive role on bursts that they believe them as ineffective and as disasters, which will retard the economy growth. Yet, it's also easy for us to notice the frequent combined existence of fast economy growth and expanding bubbles, which seems to recognize the growth-enhancing and welfare-improving role of bubble. Why?The aim of this paper is to find out whether there is"bubble"or"bubble economy"in modern China, and to identify bubble's role in economy growth and how this effect is embodied and can be explained by China's real life experience. The method is through inspection of China's current situation together with theoretical and empirical study.With the question above, this paper is arranged into the following five parts: Chapter 1, instruction. Considering researchers'various identification and people's different understanding of"bubbles"in daily life, this part contribute to clarify what is"bubble", then review and comment on the main classic theories over bubbles visas economic growth home and abroad since last century from both parties'view, some are for the bubbles and some are against the bubbles. Chapter 2, an analysis on China's current economy states. After talking about the channels by which bubbles make effects on economy growth and the effects, this part recalls Japan's bubble economy in last century, trying to tell if bubble economy exist in China now. Chapter 3, an empirical study over China. Firstly, introduce in Liu Xian's productive bubbles- based economic growth model, taking it as the theoretical foundation of the following empirical study; secondly, employ the index of stock market's earning rate to calculate roughly the bubbles'size and degree as productive bubbles, then to set up a regressive function between adjusted Gross Domestic Growth per person and bubbles, newly increased investments in fix assets, discount rate, labels and technology index. It turns out that the result corresponds to the above model and its conclusions, yet the result is not that simple and dominant which is then dig further after taking the Asian experience into consideration. Chapter 4, talk about the right attitude towards bubbles and then end with some policy proposals for keeping away bubble economies and making better use of bubbles. Chapter 5, conclusion. Briefly conclude the paper's content and talk about the directions for further study over this topic.To talk about the results of the study with the two purposes, it's found that: firstly, in China, there is no bubble economy up till now, but there are tremendous amount of bubbles in stock market and real estate market, that we have to be cautious about the bubbles and do a lot of work in improving and regulating the finance system, industrial compositions, the relationship between real economy and virtual economy, the international account and national debt for safety, rather then only concentrate on stock market or real estate market. Secondly, the empirical study results show that productive bubbles can be growth enhancing, but how much is this function played in real life depends on how much of the bubbles can be transformed into real and efficient investments in production rather than wrong investments or blind investments or even speculative purchasing and selling.At the meantime, this paper tells that the category of productive bubble and non- productive bubbles is outstanding and very useful, which should also be inspiring to the policy makers.