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Patrick Blagrave and Mr. Esteban Vesperoni

China 10. Change in Export Growth (vs. 2011–13) versus REER Appreciation 11. China Demand Shocks 12. Impulse Response Function for China Demand Shock 13. Individual-Country Level Impact of China Demand Shock 14. Region-by-Region Level Impact of China Demand Shock 15. China: World Economic Outlook Growth Vintages 16. Decline in Average Export Growth Rate over 2014:Q1–2015:Q3 Attributed to China Demand Table 1. Country Coverage

Patrick Blagrave and Mr. Esteban Vesperoni

(2016) . 10 Data from the WEO baseline are used to construct an export-intensity-adjusted China demand shock in the baseline. An alternative exercise, in which the naive baseline forecast is zero export-intensity-adjusted China demand shock (that is, China growth at the sample’s historical average) yields slightly larger effects of China’s slowdown—which is larger—on trade. 11 The selection of this time period takes into account the analysis of China’s shocks presented in “Estimation of the Panel Autoregression,” which shows that the sharpest slowdown in

Patrick Blagrave and Mr. Esteban Vesperoni

Source: IMF, World Economic Outlook . This note focuses on the implications of China’s economic transition for global trade. It analyzes the impact of China demand shocks on trading partners’ export growth, and quantifies their role in the global trade slowdown over the last two years. 1 The note addresses two empirical challenges. First, while China is a significant global source of final demand, its integration in global supply chains means that it can also transmit shocks from other countries. To capture the role of China as a potential source of shocks, we

Patrick Blagrave and Mr. Esteban Vesperoni
Using a panel vector autoregression and a novel measure of export-intensity-adjusted final demand, this note studies spillovers from China’s economic transition on export growth in 46 advanced and emerging market economies. The analysis suggests that a 1 percentage point shock to China’s final demand growth reduces the average country’s export growth by 0.1–0.2 percentage point. The impact is largest in Emerging Asia, where an export-growth-accounting exercise suggests that China’s economic transition has reduced average export growth rates by 1 percentage point since early 2014. Other countries linked to China’s manufacturing sector, as well as commodity exporters, are also significantly affected. This suggests that trading partners need to adjust to an environment of weaker external demand as China completes its transition to a more sustainable growth model.
Mr. Reza Moghadam

real activity growth in China have significant global terms of trade effects. Using the global supply-demand model estimated above, the first-round trade balance impacts are presented by country and region of higher prices for crude oil and 5 base metals following a China demand shock ( Table 1 ). Iron ore is also included owing to its importance as a factor of production (limited data availability and the prevalence of long-term contract pricing before 2010 preclude an empirical estimate of the 12-month impact on prices; the change in prices is set to the average of

International Monetary Fund

FIGURES VIII.1. China’s Share of Global Commodity Trade VIII.2. Intensity of Base Metals Consumption VIII.3. Recursively Estimated 4-quarter Commodity Price Impulse Responses to a China Demand Shock VIII.4. Crude Oil Prices IX. CHINA’S CLOSED CAPITAL ACCOUNT AND CAPITAL FLOWS TO EMS TABLES IX.1. Determinants of Gross Capital Inflows IX.2. Determinants of Bilateral Investments X. CHINA’S SAVING: THE IMPACT ON GLOBAL FINANCIAL CONDITIONS APPENDICES X.I. Methodology XI. POTENTIAL IMPACT ON GLOBAL BOND MARKETS OF REALLOCATING

Davide Furceri, João Tovar Jalles, and Ms. Aleksandra Zdzienicka

.1 percent. 2 Blagrave and Esperoni (2016) estimate the effect of China demand shocks on export growth in advanced and emerging market economies. Using a panel vector autoregression framework, they find that a 1 percentage point shock to China’s final demand reduce export growth in other countries by 0.1–02 percentage point, on average, with the effect being larger for emerging Asia economies. 3 Kolerus and others (2016) find that China shocks have a significant effect on commodity prices. In particular, they find that a 1 percent increase in China

Shaun K. Roache and Mr. Thomas Helbling

other variables and results are not reported. Why estimate a model that explicitly identifies a China demand shock? It might be argued that if the commodity market is globally integrated, the same demand shock should have approximately the same impact regardless of its origin. This would mean a global model with shocks calibrated to China’s participation in the market would provide sufficient insights. There are at least three reasons to move beyond this approach. First, the commodity intensity of industrial production, investment, and consumption are very different

Patrick Blagrave, Peter Elliott, Mr. Roberto Garcia-Saltos, Mr. Douglas Hostland, Mr. Douglas Laxton, and Fan Zhang

in the new China block of the model. First, we consider a simple (one quarter) positive Chinese demand shock. Shown in Figure 1 (Appendix II) , the shock increases demand by about one percent on impact - since this is a pure demand shock, and there is no response of supply/potential, the impact on the level of GDP and the output gap is also one percent. In response to this shock, and its impact on the output gap, inflation rises by slightly under ½ a percentage point. Given the deviations of output and inflation from their equilibrium and target levels

Patrick Blagrave, Peter Elliott, Mr. Roberto Garcia-Saltos, Mr. Douglas Hostland, Mr. Douglas Laxton, and Fan Zhang
We extend the Global Projection Model (GPM) to include a separate block for China. China plays an important role in shaping global economic outcomes, given its sheer size and trade integration with other key economies, its demand for commodities, and its policies. Also, the Chinese economy has several unique features which differentiate it from the rest of emerging Asia. These features (the use of multiple monetary-policy instruments and a managed-floating exchange-rate policy) mean that a separate treatment of China allows for a better consideration of China, as well as how the rest of emerging Asia behaves.