Assessing the Rise of China’s Domestic Supply Chain : A Macroeconomic Structural Decomposition Approach

This paper adopts a macroeconomic structural decomposition approach to investigate the sources of economic growth of the PRC, particularly the contributions of the import substitution of the intermediate inputs, the private consumption goods and the investment goods. The latter three are identified as the possible areas of the rise of the so called domestic supply chain. Data are from the World Input-output Database including the 2013 release (1995-2011) and the 2016 release (2000-2014). It is found that import substitution of intermediate inputs, a model of industrialization that many East Asian NIEs followed decades earlier, also became important in China, but only belatedly: in 2011-12 and 2013-14. The phenomenon is found to be significant in the sectors of the manufacture of (i) computer, electronic and optical products, (ii) chemical and chemical products (iii) coke and refined petroleum products, and (iv) basic metals. This paper also finds that from 1996 to 2009, exports had been the number one driving force of economic growth, while investment replaced its position after 2010, and vertical disintegration had been important throughout the years, as is evident from the negative contributions of the domestic input coefficient effect and the correspondingly positive contributions of the Leontief inverse effect to economic growth