Bubble And Growth Of China

Issues related to Chinese economic growth has called academic attention. Especially with the growth rate slowing down, the economy entered a new state and some contradictions have appeared, such as financing problem of small and medium-sized enterprises, the understanding of bubble on the assets, the disappearance of the demographic bonus etc.. Considering such reality, this paper engaged in studying how the problems above affect the growth of economy.In this paper, we added the enterprise heterogeneity concept into the traditional OLG model and discussed the competition and mutual evolution between the small and large enterprises. And also, we introduced bubble which caused by the incomplete financial market.The article firstly divided all enterprises into two types according to having the financing constraints or not. Large enterprises have advantages in using external resources while the small ones have higher producing efficiency. They competed and transformed mutually. The conversion condition is which has more significant advantages in a certain period of time. By means of simulation we proved that the economy grows rapidly when the portion of small enterprises rise. External stimulation will work in a short time but not good for long-run growthSecondly, the article discussed the bubble caused by financing constraints. Small enterprises deliberately inflated asset price to gain more collateral value. Actually the bubble serves as a channel of total capital interior modulation, which is beneficial to the economic efficiency. This kind of bubble can be under control as well. We also find that reducing the saving and loan spreads will significantly shrink the bubble.Finally, we focus on some exogenous changes which may happen in the reality. The slowing growth and changing structure of population will remarkably give an impact on the economy unless we can accelerate the improvement of technology.