China’s Growing Influence on Asian Financial Markets

IMF Working Papers, August 12, 2016

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Bibliographic details

• Authors: Serkan Arslanalp, Wei Liao, Shi Piao
• Published: August 12, 2016
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475525137.001

Authors and publication

• By Serkan Arslanalp, Wei Liao, Shi Piao
• August 12, 2016
• IMF Working Papers, Working Paper No. 2016/173, Issue: 173, Volume: 2016
• Pages: 37
• DOI: https://doi.org/10.5089/9781475525137.001
• ISBN: 9781475525137
• ISSN: 1018-5941
• Stock No: WPIEA2016173

Key findings

• Financial spillovers from China to regional markets are on the rise.
• The main transmission channel appears to be trade linkages.
• Direct financial linkages are playing an increasing role.
• Without an impact on global risk premiums, China’s influence on regional markets is not yet to the level of the United States, but comparable to that of Japan.
• If China-related shocks are coupled with a rise in global risk premiums, as in August 2015 and January 2016, spillovers to the region could be significantly larger.

Transmission channels and mechanisms

• Trade linkages: identified as the primary channel for China-originated financial spillovers to regional markets.
• Direct financial linkages: increasing importance as China’s financial integration deepens.
• Global risk premiums: act as an amplifier—China-related shocks coupled with increases in global risk premiums lead to much larger regional spillovers (illustrated by August 2015 and January 2016 episodes).

Medium-term outlook and drivers

• Over the medium term, China’s financial spillovers could rise further with tighter financial linkages with the region.
• Specific drivers noted:
  • Ongoing internationalization of the renminbi.
  • China’s capital account liberalization.

Subject areas and keywords (as provided)

• Subject: Currency markets, Emerging and frontier financial markets, Financial markets, Financial sector policy and analysis, Global financial crisis of 2008-2009, Securities markets, Spillovers, Stock markets
• Keywords: Asia and Pacific, center, center economy, China, Currency markets, Emerging and frontier financial markets, Equity markets, equity price, Foreign Exchange Markets, Global, growth outlook, market, market movement, Securities markets, spillover coefficient, Spillovers, Stock markets, trade linkage, WP

This summary is based on the IMF Working Paper "China’s Growing Influence on Asian Financial Markets" (Working Paper No. 2016/173).

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