What Caused the Sharp Downturn in the Chinese Economy during the Global Financial Crisis? A Critical Note on Causality in Trade Linkage

Liping He, Gang Fan and Panpan Yang

China & World Economy, 2010, vol. 18, issue 4, 52-69

Abstract: In responding to a view that attributes sharp downturns in the Chinese economy in late 2008 and early 2009 to the “collapse of external demand,” the present paper scrutinizes three relevant issues: How have large Chinese importers behaved in a demand‐price setting? How have Chinese commodity imports and exports interacted in recent years? Did the downturns in China's export growth come earlier and were they deeper than those in Chinese import growth? All answers appear to suggest a conclusion contrary to the abovementioned view: sharp downturns in China's trade and economy during the recent global financial crisis were, to a large extent, caused by certain domestic factors, or by factors that should not be regarded as entirely “external.” Insomuch as globalization has advanced, a large economy like China's today faces new potential sources of macroeconomic disturbances, from inside and outside.

Date: 2010
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