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Towards Recoupling? Assessing the Global Impact of a Chinese Hard Landing through Trade and Commodity Price Channels

Ludovic Gauvin and Cyril Rebillard ()

Working papers from Banque de France

Abstract: China’s rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. At a time when concerns about the sustainability of China’s growth model are rising, this paper assesses to what extent a hard landing in China would impact other countries, with a focus on trade and commodity price channels. After reviewing the main arguments pointing to a hard landing scenario – historical rebalancing precedents, overinvestment, unsustainable debt trends, and a growing real estate bubble – we focus on a sample of thirty-six countries, and use a global VAR methodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil markets separately to account for their different end-use patterns and consumption intensity in China, and we identify three specific transmission channels to net commodity exporters: through real exports, through income effects (related to commodity prices), and through investment (a fall in commodity prices reducing incentives to invest in the mining and energy sectors); we also look at the role played by the exchange rate as a shock absorber. According to our estimates, emerging economies (ex. China) would be hardest hit – with a 7.5 percent cumulated growth loss after five years –, in particular in South-East Asia but also in commodity-exporting regions such as Latin America; advanced economies would be less affected. The "growth gap" between emerging and advanced economies would be considerably reduced, leading to partial recoupling.

Keywords: China; hard landing; spillovers; global VAR; conditional forecast; commodities; recoupling (search for similar items in EconPapers)
JEL-codes: C32 F44 E32 E17 F47 Q02 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-for, nep-mac and nep-sea
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21) Track citations by RSS feed

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https://publications.banque-france.fr/sites/defaul ... g-paper_562_2015.pdf (application/pdf)

Related works:
Journal Article: Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels (2018) Downloads
Working Paper: Towards Recoupling? Assessing the Global Impact of a Chinese Hard Landing through Trade and Commodity Price Channels (2015) Downloads
Working Paper: Towards Recoupling? Assessing the Impact of a Chinese Hard Landing on Commodity Exporters: Results from Conditional Forecast in a GVAR Model (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:562

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