From the Middle Kingdom to the United Kingdom: spillovers from China

Robert Gilhooly (), Jen Han (), Simon Lloyd, Niamh Reynolds () and David Young ()
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Robert Gilhooly: Bank of England
Jen Han: Bank of England
Niamh Reynolds: Bank of England
David Young: Bank of England

Bank of England Quarterly Bulletin, 2018, vol. 58, issue 2, 11-20

Abstract: China’s credit boom is one of the largest and longest running ever recorded. Similar credit booms have typically preceded crises in other countries. This article provides an updated assessment of how a shock to the Chinese economy could affect the UK economy via standard transmission channels - such as trade and financial linkages. It then considers how amplification mechanisms, which could plausibly operate in the event of a particularly large shock, could further increase the impact on the UK from an economic crisis within China. We find that the effects via standard channels from a modest fall in Chinese GDP are larger than our previous estimates, primarily due to China’s increasing role in global trade. A more extreme shock which triggers amplification mechanisms - such as a larger financial market reaction - could potentially double the effects from the standard channels alone.

Date: 2018
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