A MACROTHEORETIC MODEL OF THE CHINESE ECONOMY

A stylized model of the Chinese economy is developed with three produc tion sectors: agriculture, nontraded industrial goods, and industrial exports. The state purchases food from farmers by dual-track pricing; urban food sales are subsidized through ration coupons. Marginal price s clear markets except that currency controls constrain the availabili ty of intermediates, the only imports. Devaluation is found to stimula te real variables, but deflates money variables; the reverse occurs wi th monetary expansion or raising the plan-track food procurement price . Lowering urban food subsidies or raising enterprise taxation reduces the budget deficit, reduces open and disguised unemployment, and defl ates nominal prices. (C) 1996 Academic Press, Inc.