Spillovers from the Maturing of China’s Economy

IMF Working Papers, November 8, 2016

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Spillovers from the Maturing of China’s Economy

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Bibliographic details

• Authors: Allan Dizioli, Benjamin L Hunt, Wojciech Maliszewski
• Published: November 8, 2016
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475552225.001

Summary and framing

• China’s transition to a new growth model continues and the impact has been felt across the globe.
• Several trends contribute to the ‘maturing’ of China’s economy:
  • i) structural slowing on the convergence path;
  • ii) on-shoring deepening;
  • iii) demand rebalancing from investment towards consumption.
• In the short term, financial stress may lead to a cyclical slowdown.
• The paper discusses and quantifies spillovers to the global economy from these different developments using model-based analysis.

Methodology

• Analysis undertaken using the APDMOD and G20MOD, both modules of the IMF’s Flexible System of Global Models.
• The paper conducts scenario and quantitative analysis to assess spillovers under plausible values of the identified developments.

Key findings

• For plausible values of the maturing developments in China, the overall impact on the global economy is not large.
• The impact on China’s closest trading partners and commodity exporters can be notable.
• Financial-sector stress in China could produce a cyclical slowdown with additional near-term spillovers.

Thematic findings and subject coverage

• Commodity prices: affected by China’s demand rebalancing and on-shoring deepening.
• Expenditure and public investment: rebalancing from investment towards consumption alters global demand composition.
• Exports and international trade: shifts in China’s import demand and on-shoring affect trading partners.
• Financial sector policy and analysis: short-term financial stress is a channel for cyclical spillovers.
• Prices and public-private partnerships: changes in investment and public investment spending are relevant for spillovers.
• International business cycle and growth convergence path: structural slowing is tied to China’s maturing process and global cycle interactions.

Policy implications and recommendations

• Close monitoring of financial-sector risks is important given potential cyclical slowdowns.
• Trading partners and commodity exporters should assess exposure to demand composition changes from China’s rebalancing.
• Policy frameworks should account for muted global aggregate impact but potentially sizeable localized effects for close partners and commodity-dependent economies.

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