Impact of inflation on Chinese economy: Growth, investment, and regional development

Abstract

After 15 years of economic reforms, the most notable feature of today's Chinese economy is high economic growth compounded with high inflation. The continuous coexistence of these events has raised two questions that are important to address. That is, what is the meaning of the positive correlation between high growth and high inflation, and what is the real impact of the current inflation on China's economy. The objective of this paper is to explore the impact of inflation on Chinese economy with particular reference to economic growth, investment in fixed assets, and spatial distribution of inflation. Findings of this paper suggest that high inflation that has accompanied the recent rapid economic growth has made the GDP growth rate of today's China highly suspicious. What is more, while inflation in China has mainly been generated by over-investment and unfruitful development in the eastern region, which is financed by excess money printing and central budget deficit, the ill effects of inflation have mostly been borne by the poor regions.