The Empirical Study Of The Relationship Between The Fixed Assets Investment Cycles And The Business Cycles In China

Since the reform and opening up, the rapid growth of China’s economy has been accompanied by obvious economic fluctuations. Since Keynes identified the dominance of investment in the theoretical framework, the factor of investment has been in focus in the role of the economic cycle fluctuation. From the perspective of the total demand, the world economy is in the period of adjustment after the 2008 financial crisis, besides the developed countries proposing a "re-industrialization strategy", making the return of investment by multinationals. At the same time, with the rise of trade protectionism and investment protectionism in developed economies, the contribution of net export to China’s economic growth is becoming smaller and smaller. In addtion, the investment rate has been in a high level. However, because of its multiplier effect, investment has played an important role in economic growth and volatility. In the modern theory of the economic cycle, investment cycle has been considered as a major factor leading to fluctuations in the business cycle. Therefore, the empirical analysis of the investment cycle characteristic in China and its relationship with the business cycle fluctuations, not only can provide the basis for the theoretical research, but also has important practical significance..This paper selects the quarterly GDP and gross fixed asset investment date of 1992-2014,uses the commonly domestic growth rate cycle, applies BBQ approach and combines with the new short period turning point criterion to identify the turning points of the business cycle and the investment cycle, as well as divide the cycles. Besides the operating situation in each stage of the two maro variables is described in detail, combined with macroeconomic policies. The relationship between the investment cycle and business cycle is discussed from the prespective of the periodic characteristic. Then we use the classical econometric model, including cointegration, error correction model, Vector autoregressive (VAR) model, to empirically analyse the correlation of the two variables. From the perspective of total and incremental, the impact of the dynamic effect between the two are quantified, the relationship between the investment cycle and the business cycle is further confirmed and supplemented comprehensively.The results show that there is a close relationship between the economic cycle and the fixed asset investment cycle, and the fluctuation of the investment cycle leads to the fluctuation of the economic cycle. Within the time range of our study, the fixed asset investment cycle and the economic cycle has a remarkable consistency, but because of the multiplier acceleration principle, the fluctuation range of the fixed assets is much large than that of economic cycle. However, in recent years, as China’s economic growth speed into the new normal structural slowdown, the growth rate of the fixed asset investment slowed obviously. In addition, the fluctuations in the economic cycle of our country appear to lag behind the fluctuation in fixed asset investment. One part is due to the nature of fixed asset investment, the other part is due to the low efficiency of resources which is caused by our country’s unreasonable investment structure. In addition, the fixed asset investment and gross domestic product (GDP) show a stable long-term relationship, but the impact of the investment cycle and the business cycle of the interaction in the impact strength and the role of time are shown the nature of instability. Finally, this paper gives a brief policy recommendations.The main innovations of this paper are as follows:(1) This paper uses the quarterly data of 1992～2014. Meanwhile, the BBQ approach, improved by domestic researcher, is used to identify the turning points of the economic cycle and the investment cycle which is measured by the economic growth rate and the fixed asset investment growth rate, and then we divide the cycles into several stages, a more deeper analyses of the economic and investment situation in each phase of operation. This paper uses the quarterly data of 1992 ～2014, the international popular BBQ approach and the economic cycle turning point method proposed by domestic scholars to determine the turning points of the fixed asset investment cycle and the business cycle fluctuations, and then divide them into the respective cycle stages, which deeply analyze the operating characteristics and the recent development trend of the business cycle and investment cycle at different stages.(2) After we obtain the relationship between the economic cycle and the fixed asset investment from the perspective of the periodic characteristic, we then establish the influence relations by models, such as cointegration, error correction model, Vector autoregressive (VAR) model, which quantify the long-term relationship and the dynamic effect, making the result of this paper supplemented in more detail.