A Nascent International Financial Channel of China’s Monetary Policy Transmission

Sili Zhou, Chang Ma and Alessandro Rebucci

No 20672, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Chinese private portfolio equity outflows, though small compared to other Chinese outflows, are growing rapidly because of capital account liberalization and capital flight. Using granular stock-holding data on Qualified Domestic Institutional Investor (QDII) mutual funds, we identify a nascent financial channel of international transmission of Chinese monetary policy to world stocks. Event study analysis around monetary policy announcement days reveals that monetary policy tightening depresses returns of country equity indexes and individual U.S. stocks with QDII fund exposure relative to non-exposed stocks. The results are robust to controlling for the real transmission channel of Chinese monetary policy and other confounders. The effect is driven by smaller and less liquid firms, but not by China-concept stocks or those highly exposed to China's macroeconomic shocks. We also find that the results are driven by household portfolio rebalancing from more to less risky assets following the announcement.

JEL-codes: F30 G10 (search for similar items in EconPapers)
Date: 2025-09
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