AbstractThis paper establishes a bivariate VAR model in sectoral level. Using a weighted matrix from an input -output table, we model an economic system which reflects the interdependence of all the sectors. During empirical analysis, we estimate the VAR model for 17 Chinese sectors in the sample period from 1985 to 2008. Generalized impulse response function is used to analyze the dynamic effects of real output growth and fixed asset investment growth. The results show that Chinese economic system has diversity and no any industry has absolute dominance in the system. To some extent, the economic growth in China is pulled by investment on short term. We also find that when the real output of Manufacture of Machinery and Equipment is given one negative shock, the volatility of the economic system mainly comes from the manufacturing industries. If the authorities take policy to stimulate the production, it's possible to aggravate the fluctuation in the adjustment process of economic system. The economy will be short -term overheating.