Influencing Factors’ Analysis Of Business Cycle Synchronization Between China And Its Major Trading Partners

With the deepening of economic globalization, global economy becomes increasingly connected via various channels like trade, investment and industry and so on. The business cycle of one country impacts the business cycle of other countries through these channels, hence the world business cycle synchronization. The paper finds that as time goes by, business cycle synchronization between China and its major trading partners keeps increasing, via analyzing the actual GDP fluctuation of China and its trading partners’ after extracting trend through H-P filter method and constructing VAR model. There are various factors influencing business cycle synchronization between China and its major trading partners, the paper selects22of China’s major trading partners, constructs GMM panel data models to analyze the influences bilateral trade intensity, bilateral intra-industry trade intensity, bilateral foreign direct investment intensity and industrial structure similarity have on their business cycle synchronization.By careful research, between1992and2011, bilateral trade intensity, bilateral intra-industry trade intensity, industrial structure similarity and business cycle synchronization are all positively related. When analyzing the panel data model of China and its major trading partners, what is worth noticing is that panel data model regression results show that bilateral foreign direct investment intensity and business cycle synchronization are negatively related, which is different than that of most other documents. This is possibly because the foreign direct investment from the developed countries causes trade substitution effect and is mainly utilized in the labor-intensive industries.On the basis of the research conclusions, the policy proposals are as follows. First, China needs to further strengthen the economic and trading co-operations with its major partners, which is quite important to push bilateral economic growth. Second, China has to adopt suitable policies to lead its enterprises to expand their influences in the world intra-industry trade, in order to make some enterprises take up the leading role in the value chain. Third, it is essential for China to actively absorb more hi-tech foreign direct investment from its major trading partners, and make full use of them. Last but not least, the transformation and upgrading of China’s industrial structure should be on the top of its agenda for a long time in the future.