Research On The Influence Of Financial Crisis On Economies Of China, Japan And Korea And Effect Of Governments' Measures

The global financial crisis in 2008 triggered by the U.S. subprime mortgage crisis has had a profound and lasting impact on the economies of China, Japan and South Korea, which includes severe fluctuation in capital markets, export being hampered, economic growth obviously slowing down, even serious recession in Japan and etc. In addition, Japan and South Korea also are confused with debt problem, while China needs to face serious inflation. With continuous occurrence of debt problems in Europe and U.S., the influence of the financial crisis on the international economies is becoming greater. As the most important neighbors of China and pioneers of open economy, Japan and South Korea have many experiences and lessons that we can learn.Since the Asian financial crisis, the most notable feature of financial crisis is contagion. The deeper the openness of Chinese market, the more obvious the effects of crisis contagion on China. Therefore, the study on crisis contagion will show great practical significance. In this regard, the experiences of South Korea are especially worth our study. Different from fragile financial system in 1997, South Korea showed better anti-crisis capacity in 2008, which mainly due to a series of effective reforms after Asian financial crisis.In this paper, financial crisis models of China, Japan and South Korea have been established to obtain main factors which affect the "crisis severity" of the three countries, and by the introduction of contagion variables to the models, the contagion channels of financial crisis have been tested. In this paper, by the causality test between the "crisis severity" of U. S. and the main macroeconomic indicators of China, Japan and South Korea, detailed analysis on the crisis impact on the economies of the three countries will be carried out. Finally, combining the tendency of "crisis severity" and the main macroeconomic indicators of China, Japan and South Korea, the effect of crisis policies will be analyzed. Specifically, the following contents will be stated in the paper:Chapter I introduces the background and significance of this paper, as well as definition of related concepts, ideas and main content, research methods and the innovation and disadvantage. Chapterâ…¡is about financial crisis theories and early warning methods. In this chapter, we systematically introduce four-generation financial crisis models, classic crisis early warning methods and its new development. The theories and early warning methods of financial crisis are the theoretical basis of indicator selection in building financial crisis models. We shall only choose appropriate indicators to build financial crisis model as long as we understand potential reasons for financial crisis. However, other experiences of early warning methods are also important references to indicator selection.Chapterâ…¢is about financial crisis model based on MIMIC model, and this chapter is the main focus of this study. Rose and Spiegel (2009) proposed building financial crisis model based on the MIMIC model, which was a kind of structural equation modeling methods. According to empirical research, they found that the model was not ideal for cross-section data, but effective for time series data of one specific country. In this chapter, we build financial crisis models of China, Japan and South Korea separately using this method. Also according to the choice of exogenous variables, the underlying reasons could be found for the fluctuation of financial markets in these countries.Chapter IV is about the influence of the crisis contagion on China, Japan and South Korea. It is effective complement to the third chapter. Since the Asian financial crisis, the crisis contagion has become stronger and stronger, especially for the financial crisis in 2008. Based on the contagion theories of "spillover effect" and "monsoonal effects", some contagion indicators will be chosen. Also models in Chapter III will be taken into test, thus the contagion channels of China, Japan and South Korea in this crisis will be found.Chapter V is about the influence of U.S. financial crisis on the economies of China, Japan and South Korea. Cointegration theory and Granger causality test will be used to judge the specific influence of U.S. financial crisis on the main macroeconomic indicators of China, Japan and South Korea. The U.S. financial crisis and a series of policies adopted by the government later have taken some influence on China, Japan and South Korea, and especially the quantitative easing monetary policy taken by the United States has directly led to a significant increasing of imported inflation pressures in emerging market countries (such as China and South Korea). Therefore, the influence of U.S. can not be neglected in comparing the performance of China, Japan and South Korea in the crisis.Chapter VI is the analysis of crisis countermeasures effect of China, Japan and South Korea's governments. According to Governments' policies in the crisis and the effect of these policies comparative study is carried out, from which experiences and lessons can be learned to reduce the development risk in the future to the maximum extent.By means of the above research, following conclusions could be drawn in this paper:1. Based on Rose and Spiegel's (2009) study, combined with financial crisis theories and related empirical studies, nine exogenous variables and three endogenous variables have been chosen to establish the financial crisis model of MIMIC9-1-3 in Figure 3-2.2. The estimate of the financial crisis models of China, Japan and South Korea shows that the RMB appreciation pressure, structural problem of foreign exchange reserve and over high housing price are the main problems Chinese government facing. For Japan and South Korea, except for the problem of domestic credit caused by financial crisis, the most serious problem is their debt issue. But there are differences between the two countries on the debt issue. Although debt structure of Japan is reasonable, the scale of government debt is too large. Oppositely, the debt scale of South Korea is not large and the financial condition is in order, but the maturity structure of debt is a serious problem.3. The test results of contagion channels show that the trade contagion channels of China, Japan and South Korea existed in the financial crisis in 2008; financial contagion channels of China and South Korea existed; and the monsoonal contagion channels of China also existed.4. The Granger causality test results between the "crisis severity" indicator of U.S. and the main macroeconomic indicators of China, Japan and South Korea indicate that the financial crisis in 2008 has influenced the GDP growth rate and unemployment rate of China, the real GDP, unemployment rate and trade balance of Japan, and the real GDP and trade balance of South Korea. 5. Considering recent tendency of the "crisis severity" indicators of China, Japan and South Korea and main macroeconomic indicators of the three countries, we evaluate the effect of the crisis countermeasures. Without taking contagion factors into consideration, South Korea has the highest "crisis severity", followed by Japan and China. Otherwise, the "crisis severity" of the three countries has no big difference with taking contagion factors into consideration. In light of the recent tendency of the "crisis severity" and the main macroeconomic indicators, the effect of crisis countermeasures of Korea is ideal. However, China is in face of serious inflation at present, while Japan falls into recession and deflation once again.In addition, the experiences of Japan and South Korea provide some beneficial enlightenment to China as well. Firstly, Japan's experiences show that excessive appreciation of RMB should be avoided. Secondly, the conversion from the "foreign exchange held by the state" to" foreign exchange held by the people" should be speed up, and the reform of foreign exchange management system should be advanced continuously. Thirdly, financial supervision should be strengthened with the opening of financial markets. Fourthly, the power of innovation can not be ignored during economy development. Finally, the inflation targeting of South Korea provides some beneficial references to China.The occurrence of debt problems in Europe and America in 2011 shows that the financial crisis is far from the end, so we have to sufficiently summarize the experiences and lessons learned from the financial crisis in 2008. With reference to the development experiences of Japan and South Korea, the ability of resisting financial crisis should be improved continuously.