The Research On The Effects Of U.S. Business Cycles On Chinese Business Cycles

The research on the effects of U.S. business cycles on Chinese business cycles is an important macroeconomic issue under the open economy condition, and is also a realistic research topic under the current international finance crisis. The current researches of international business cycle are largely focused on the transmission of business cycles between developed countries, but the researches on the transmission between developed countries and developing countries are rare.Following the international business cycle transmission theory, this paper studies the effects of U.S. business cycles on Chinese business cycles, and based on the findings, the paper puts forward policy proposals on China's continuous and steady economic development.First, the paper studies the degree of synchronization of the Chinese and U.S. business cycles, which serves as the foundation for the analysis of Chinese and U.S. business relations. The research indicates that China and U.S. already have undergone 5 business cyclical fluctuations since 1978, and both countries are in the recession stage of the fifth business cycle under the current international finance crisis. By employing various criteria, the analyses on several indices suggest that business cycles in the two nations are most synchronized during 2000-2008 since 1978. The trade expansion between China and U.S. and the continuity of China's opening-up are the major factors contributing to the synchronization of the business cycles.Next, the paper analyzes the channels through which the business cycles are transmitted from U.S. to China and to what degrees these channels are effective, which serves as the theoretical foundation for examining the transmission effects from U.S. to China. The research indicates that, as the most important economy globally, America transmits its business shocks to China not only by the direct trade and financial relations, but also by the indirect international business shocks created by U.S.. Among them, the financial transmission of U.S. business cycles to China is mainly through channels including the interest rate, the exchange rate, the credits, the capital market, and international interest rate, while the trade transmission is mainly through the bilateral trade, the American direct investment to China as well as American trade and investment elsewhere in the world. Empirical analyses of various time series indicate that these main transmission channels are basically unimpeded.Finally, on the analysis of the transmission channels of U.S. business cycles to Chinese business cycles, we study the financial and trade transmission effects by constructing mathmatical models. On the financial transmission research, we adopt the SVAR model which is widely used for the analysis of international business cycle, and analyze the financial transmission effects of U.S. business cycle. The measurement of the transmission effects by international interest rate and raw material price index model is one of the major contributions by the model. The research indicates that the credit channel is the most influential financial channel that affects China, followed by the interest rate and the exchange rate, while the capital market is the least influential financial transmission channel that affects Chinese business cycle.Up until now, the effects of U.S. business cycles on China by financial transmission are significant. On the trade transmission research, we conducted a theoretical analysis on a small scale open economy, and then construct a theoretical trade model involving two nations. Among them, the introduction of the foreign direct investment, the trade structure as well as the trade condition is another contribution by the paper. By computing the main parameters of the trade transmission theoretical model and empirically analyzing the trade transmission, we find that the effects of U.S. business cycles on China by the goods trade channel are more profound than that of the service trade channel, and that through its influence on the global economy, America is able to magnify the effects made by the direct trade relations with China.Generally speaking, along with China's further opening-up policy, Chinese and U.S. business cycles are more and more closely related since 2000. Upon the current economical situation, the effects of U.S. business cycles on Chinese business cycles are significant by both the trade channels and financial channels.