The recent “rebalancing” of China’s economy has raised concerns that the country’s growth slowdown may have large global implications. This note looks at this issue by analyzing the effects of China’s growth shocks on the output of other countries and how these effects have changed over time. Estimates indicate that the magnitude of China’s spillovers has steadily increased during the last two decades, but remains yet limited. Spillovers are larger in neighboring (Asian) countries and in emerging markets and developing economies. Trade linkages remain main transmission channels. In addition, a negative shock in China has (marginal) positive effects for net commodity importers while negative for net commodity exporters.

China Spillovers: New Evidence from Time-Varying Estimates

This note assesses empirically the role Chinese activity plays in global commodities markets, showing that the strength of Chinaâs economic activity has a significant bearing on commodity prices, but that the impact differs across commodity markets, with industrial production shocks having a substantial impact on metals and crude oil prices and less so on food prices. The size of the impact on the prices of specific commodities varies with Chinaâs footprint in the market for those commodities; the empirical estimates indicate that, over a one-year horizon, a 1 percent increase in industrial production leads to a 5â7 percent rise in metals and fuel prices. The surprise component in Chinese industrial production announcements has a bearing on commodity prices that is comparable in magnitude to that of industrial production surprises in the United States, and this impact is much larger when global risk aversion is high.

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China's Footprint in Global Commodity Markets

Online banking has become an important distribution channel for commercial banks. We construct a bank-specific indicator of online channel adoption to study the risk and return of online channel based on a sample of 118 Chinese banks over the period of 2002–2016. Our empirical results find that online channel improves profit efficiency (i.e. a positive return) of the adopting banks. Even though cost efficiency deteriorates, such improvement attributes to the rise in non-interest income efficiency. In reference to risk management, online channel weakens loan quality of the adopting banks, which also raises their solvency risk accordingly. Overall, our results suggest that online channel increases the return of adoption banks albeit at a higher risk. Such risk-return effects are heterogeneous depending on the management skill, labor intensity and size of adopting banks. However, there is no significant return relates to the costly content enrichment of online channel. Finally, our results are robust to alternative specifications, alternative measures of bank efficiency and risk, alternative sample selection and estimation methods, and omitted variable biases.

Risk and return of online channel adoption in the banking industry

The paper presents some evidence on the overwhelming relevance of systemic risk and the lesser importance of US interest rates in the global transmission of shocks. This evidence suggests that the literature could benefit from incorporating global confidence variables into global frameworks in the study of the global transmission of shocks. As framework, we used a global semi-structural model (GSSM) augmented with common factors for country risk and country credit. We approximated country risk with historical stock volatility, a measure that is uniform and available across countries; in addition, we measured spillovers as the share of forecast error variance explained by different volatility factors. We found that systemic risk is the main volatility factor in all systemic economies, and also accounts for the bulk of spillovers into non systemic economies. Other volatility factors such as global credit, foreign interest rates and trade-related factors rarely accounted for shares of forecast error variance above one percent.

Volatility spillovers and systemic risk across economies : evidence from a global semi-structural model

The analysis of China’s impacts on the 44 SSA countries reveals that: (i) after joining the WTO in 2001, China has started to impact significantly on SSA growth: one-percent increase in China’s GDP per capita leads to 0.02 percent increase on the SSA’s GDP per capita; (ii) oil and investment-goods exporters benefit more from China’s growth; (iii) compared to China’s consumption, its investment growth acts as a more important channel in influencing SSA; (iv) exports to China, highly linked to China’s growth, is an important indicator for SSA’s exports. Our results call for SSA countries to be well prepared for China’s rebalancing given its growing economic influence and to proactively search a sustainable way to continuously enhance productivity.

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China’s Impacts on SSA through the Lens of Growth and Exports

Although Chinaâs much-needed transition to a new growth path is proceeding broadly as expected, the transition is still fraught with uncertainty, including regarding the Chinese authoritiesâ ability to achieve a smooth rebalancing of growth and the extent of the attendant slowdown in activity. Thus, in the short run, the transition process is likely to entail significant spillovers through trade and commodities, and possibly financial channels. This note sheds some light on the size and nature of financial spillovers from China by looking at the impact of developments in China on global financial markets, with a particular emphasis on differentiation across asset classes and markets. The note shows that economic and financial developments in China have a significant impact on global financial markets, but these effects reflect primarily the central role the country plays in goods trade and commodity markets, rather than Chinaâs financial integration in global markets and the direct financial linkages it has with other countries.

https://www.elibrary.imf.org/doc/IMF062/23733-9781475539486/23733-9781475539486/Other_formats/Source_PDF/23733-9781475541984.pdf

Spillovers from China: Financial Channels

Although China’s much-needed transition to a new growth path is proceeding broadly as expected, the transition is still fraught with uncertainty, including regarding the Chinese authorities’ ability to achieve a smooth rebalancing of growth and the extent of the attendant slowdown in activity. Thus, in the short run, the transition process is likely to entail significant spillovers through trade and commodities, and possibly financial channels. This note sheds some light on the size and nature of financial spillovers from China by looking at the impact of developments in China on global financial markets, with a particular emphasis on differentiation across asset classes and markets. The note shows that economic and financial developments in China have a significant impact on global financial markets, but these effects reflect primarily the central role the country plays in goods trade and commodity markets, rather than China’s financial integration in global markets and the direct financial linkages it has with other countries.

Frantisek Ricka

Papers

Spillovers from China: Financial Channels

Spillovers from China; Financial Channels