Impacts of the Euro Sovereign Debt Crisis for China: A CGE Analysis

Based on a multi-sector computable general equilibrium (CGE) model of China, this paper studies the impacts of European sovereign debt crisis on China’s economy under different scenarios, and simulates the effects of corresponding export debate adjustment policy. The results indicate that the crisis will have a significantly negative shock on China’s macro economy from both supply and demand side. Moreover, the crisis will decrease China’s international trade, more for exports than for imports, and the impacts will be increased with more countries involved in the crisis and more serious of the crisis. The impacts on trade by industrial sector are closely related with characteristics of the sector, i.e., sectors with intensive exports to Europe will have a larger shock. The results also shed light on policies: On the one hand, the increasing of the pricing power determination will effectively reduce the negative effect of the crisis. On the other hand, a carefully designed export rebate rate adjustment policy will mitigate the shock of the crisis without greatly increasing the overall tax burden.