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Will the financial crisis become the turning point for China's auto industry? A dynamic computable general equilibrium analysis with imperfect competition

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Listed:
  • Hao Xiao
  • Shujin Zhu
  • Lafang Wang

Abstract

Following the substantial damage from the financial crisis in 2008, can China's auto industry successfully take up new challenges and grasp the opportunities ahead? First and foremost, this paper summarises the ways that the financial crisis has impacted upon China's economy. By analysing the impacts based on the MCHUGE model, the paper concludes that reductions in export demand and consumption expectations have limited impact on China's auto industry, while the comparative reduction in investment expectations has a great impact on China's auto industry. The paper builds the MCHUGE model with imperfect competition in order to assess whether China's auto industry, characterised as an oligopoly, could successfully accept such a challenge. The conclusion of this paper indicates that the damage to China's auto industry caused by the financial crisis would appear even more serious if the static effect of an oligopoly was the only consideration. Finally, by simulating the implementation of the Revitalisation Plans of the Automobile Industry, it is concluded that the revitalisation policy aims to boost auto consumption and will thus bring new opportunities for China's auto industry; on the other hand, the mergers and acquisitions between and among auto industries, as well as the relevant potential technology progress and the popularisation of new energy automobiles, will further promote the development of China's auto industry.

Suggested Citation

  • Hao Xiao & Shujin Zhu & Lafang Wang, 2009. "Will the financial crisis become the turning point for China's auto industry? A dynamic computable general equilibrium analysis with imperfect competition," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 7(4), pages 477-497.
  • Handle: RePEc:taf:jocebs:v:7:y:2009:i:4:p:477-497
    DOI: 10.1080/14765280903332249
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    References listed on IDEAS

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    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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