One of the most relevant events in the world economy over the last decades has been the rise of the Chinese economy. From being a secondary actor in international affairs, China has become a superpower in both the economic and political arenas. China was until recently the world’s fastest-growing major economy, with growth rates averaging 10% over 30 years. The world’s second largest economy in terms of nominal gross domestic product (GDP), Chinese GDP accounts for 15% of world GDP. China accounts for more than 10% of total world trade, and is the world’s largest exporter and second-largest importer of goods.

These impressive developments have resulted in an extraordinary improvement in the standard of living of the population, although the levels of per capita income are still far from those of the most advanced countries. In such a context, the Chinese government has expressed its concern about further advancements in the standard of living of the population, at the same time that growing demand for better living conditions is appearing from Chinese citizens.

The aim of this paper will be quantifying the effects of one of the main policies that can result in an improvement in the living conditions of the population, such as the public provision of social services, which might lead to the development of a welfare state along the lines of most developed countries. The empirical methodology will make use of a computable general equilibrium (CGE) model. The advantage of this model is they allow obtaining consequences of changes in a particular variable on the whole economy under analysis and specific effects across different productive sectors. The model will also be multi-country, so we can analyze the effects of the proposed policy measure, not only on the Chinese economy, but on several regions of the world economy. The latter feature is of particular relevance given the size of the Chinese economy and its likely influence on other economies, in particular those of Eastern Asia.

Specifically, we will simulate the effects of an increase in the levels of public spending in health care and social assistance in the Chinese economy, and examine global effects, i.e., the effects on the main macroeconomic variables of seven regions of the world economy: the EU, the U.S., Japan, China, Asia-Pacific, Latin America and the rest of the world. The main data source will be the global trade analysis project (GTAP) data base.