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

Ludovic Gauvin () and Cyril Rebillard
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Ludovic Gauvin: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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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 36 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)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-04141401
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Related works:
Journal Article: Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels (2018)
Working Paper: Towards Recoupling? Assessing the Global Impact of a Chinese Hard Landing through Trade and Commodity Price Channels (2015)
Working Paper: Towards Recoupling? Assessing the Global Impact of a Chinese Hard Landing through Trade and Commodity Price Channels (2015)
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