Claassen, Kabundi & Loots: Decoupling between China and Advanced Economies

Abstract:

In the past twenty years, China has made impressive strides at transforming its economy. From a starting point of low economic growth and high poverty levels to average GDP growth rates of ten per cent a year, China has over the past decade taken centre stage in the global economy and is considered by analysts such as Subramanian (2011) to be an “inevitable superpower”. As that power has been called into question with a hard landing looming on the horizon, ever more attention is paid to the role that China plays in the global economy.

Since the economic policies in China are embedded in a centralised decision model, the question is to what extent its business cycle is in tandem with the world business cycle, which is advertently shaped by the advanced economies’ business cycles. The increased participation and perceived dominance of China in the world economy lead to the question to what extent the Chinese economy and per definition its business cycle has become integrated with that of advanced economies. Does the Chinese business cycle comove with advanced countries’ business cycles? This question gained particular attention especially around the time of the 2008 credit crunch. What had started as an advanced crisis soon became global, and the response from and impact on emerging markets in general and China in particular were under the spotlight. The notion took hold that some emerging economies had decoupled from the business cycle of advanced economies during and immediately after the crisis. Within this debate, China, as a very large emerging market, warrants special attention.

 

Available for download here.

 

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