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Open AccessArticle

The Flexible Acceleration Mechanism of China’s Capital Adjustment with the Goal of Consumption-Driven Sustainable Growth

by Peng Su 1, Xiaochun Jiang 2,* and Wei Sun 2
1
School of Management, China University of Mining and Technology, Xuzhou 221116, China
2
Center for Quantitative Economies, Jilin University, Changchun 130012, China
*
Author to whom correspondence should be addressed.
Sustainability 2018, 10(3), 886; https://doi.org/10.3390/su10030886
Received: 10 February 2018 / Revised: 11 March 2018 / Accepted: 18 March 2018 / Published: 20 March 2018
(This article belongs to the Section Economic, Business and Management Aspects of Sustainability)
China has had an investment-led growth pattern that is unsustainable. It is struggling to shift to a consumption-driven economy, and capital adjustment is crucial to the transition. In response, the principal objective of this study is to analyze the internal market mechanism of China’s capital adjustment. Due to the imperfections of the market, we use the flexible acceleration model, which we put in an IS (Investment – Saving equation)–LM (Liquidity preference – Money supply equation) framework in order to reflect the guiding role of demand. The results show that the flexible acceleration model fits China’s investment well, and the demand-oriented market mechanism of capital adjustment has been formed; however, China’s market adjustment ability is not strong. The adjustment coefficient is only 0.22, and shows a decreasing trend. So, in the capital optimization process, relying on the market alone is not realistic. Furthermore, the calculated replacement rate is up to 0.429, which indicates that China’s capital is less efficient, and there are duplicated assets, idle assets, and wasted investments. The error correction model’s results show that the impact of the interest rate on the investments is not significant in the short term, so the existence of invalid capital is more likely to stem from the soft budget constraints, which require attention. View Full-Text
Keywords: sustainable growth; capital adjustment; consumption-driven; flexible acceleration; IS-LM model sustainable growth; capital adjustment; consumption-driven; flexible acceleration; IS-LM model
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Su, P.; Jiang, X.; Sun, W. The Flexible Acceleration Mechanism of China’s Capital Adjustment with the Goal of Consumption-Driven Sustainable Growth. Sustainability 2018, 10, 886.

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