Study On Co-movement Of Business Cycle Between China And G7

It is inevitable for business cycle of a certain country to fluctuate. However, it is different in terms of degree of fluctuation due to different economic stage of countries. Along with the economic globalization, co-movement of business cycle presents to a certain extent in different countries via the channel of international trade, financial market, etc.On the other hand, along with the rapid development of economy, increase of national strength as well as more impact to the world economy, some developing countries such as China do not maintain co-movement with major industry economy. This kind of circumstance is called "decoupling" by academia. "decoupling" refers to a situation that business cycles of developing and developed countries do not move with the same pace, or even opposite. For example, the growth rate of China maintains as a high level when U.S. crisis happens.Whether "decoupling" happens in China is issue discussed recently. Since financial crisis occurs, China alone still keeps a high growth rate, regardless the downside of other countries which now rely on developing countries more than before. According to the reports of IMF and World Bank, developed world depends on developing world more and China contribute to 20% of GDP of the whole world. Therefore, facing the most serious financial crisis since the early 30 century, it is important to study whether there is decoupling happening in China, to study the running posture and conduction channels of Chinese business cycle and other business cycles, as well as the new features of China's business cycles and business cycles in other countries have important theoretical and practical significance. Because that will help China to grasp the operation of the business cycle posture, strengthen international economic cooperation and international policy coordination, the implement more effective macroeconomic regulation and control, make good use of the opportunities, circumvent the risk comes along with other economic fluctuations, especially with the current global financial crisis, to ensure that China's economic maintain a smooth running.From the quantitative point of view, by using correlation analysis, vector auto regression, Granger causality test, impulse response functions and variance decomposition and other methods, this article looks into the micro-independence and the existence and size of the fluctuations and co-movement of China's business cycle and G7 business cycle, the Granger causal relationship between China's business cycle and G7 business cycle fluctuations, the conduction process for China's business cycle, the G7 business cycle and the dynamics of the impact of bilateral trade mutual, as well as the proportion of the factors that can explain the fluctuations.This article comes to the following conclusions:(1) G7 shows high export dependence on China, it highlights China's irreplaceable economy role in G7; (2) Gradual increase of the correlation between China's business cycle and G7 business cycle have shown from 1978 to 2009; (3) China's economy and the Euro and U.S. economy have shown signs of being co-mobility. China's economic fluctuations and the economic fluctuations of G7 are broadly synchronous; (4) After HP filtering, There is Granger causality between China's economic growth and economic growth in G7; (5) The impulse response function shows that Chinese GDP are the major factor to explain itself and trade is another important factor. Variance decomposition studies on Chinese economy and G7 shows that China GDP is the major factor to explain G7 and bilateral trade. And trade is important channel to influence China and G7 economy. Along with the reform of China economy deepening, it will influence G7 and its trade more than before; (6) According to the empirical research, the hypothesis of decoupling is not true. Since 2000, China and Euro, China and U.S. with Canada, and China and Japan become more inter-dependent in terms of trade and business cycle. Therefore, it is essential for China to cooperate with world economy to ensure the smooth running of China in the current situation of international financial crisis.