How has China achieved this miracle? Economists studying China face thorny theoretical and empirical issues, mostly derived from the country’s years of central planning and strict government control of many industries, which tend to distort prices and misallocate resources. In addition, since the Chinese national accounting system differs from the systems used in most Western nations, it is difficult to derive internationally comparable data on the Chinese economy. Figures for Chinese economic growth consequently vary depending on how an analyst decides to account for them.
Although economists have many ways of explaining or modeling economic growth, a common approach is the neo-classical framework, which describes how productive factors such as capital and labor combine to generate output and which offers analytical simplicity and a well-developed methodology. Although commonly applied to market economies, the neo-classical model has also been used to analyze command economies. It is an appropriate first step in looking at the Chinese economy and yields useful “benchmark” estimates for future research. The framework does, however, have some limitations in the Chinese context.