The Relationship Between The International Crude Oil Prices And China’s Basic Industries

Before and after the 2008 financial crisis,crude oil price experienced a spike;In2011,it once again standed on the hundred mark.However,good times don’t last long,in 2014 International oil prices plunged nearly 50%,and oil prices still continued to plunge into 2015.Since the reform and opening up,the demand for energy will rise further as industrialization and urbanization move ahead,and as people consume more along with greater prosperity.China’s crude oil is mainly dependent on imports,foreign dependence up to 60%.In this background,this thesis studies the relationship crude oil prices and China’s basic industries with using a variety of measurement methods.The thesis has important academic value and significance on the long-term healthy development of Chinese economy,acting energy policy and guarding against financial market risk.The major methods adopted in this paper are Granger causality test,CARR model,CCF test etc.From the sub-industry perspective the paper explores the relationship bewteen the international crude oil price fluctuations and China’s six basic industries,which including electricity & utilities,steel,machinery,fundamental chemicals,coal,petroleum and petrochemical.From the empirical analysis,we have the following three main conclusions:Firstly,there is a significant bi-directional linear Granger causality between oil price return and steel,coal,petroleum and petrochemical.Machinery,fundamental chemical industries have uni-directional effect on crude oil returns in linear Granger causality test.There exists no linear Granger causality between oil price return and electricity & utilities.There exists a remarkable bi-directional non-linear Granger causality between oil price return and six basic industries.Secondly,the bi-directional information spillover effects between Chinese electricity,steel,machinery,fundamental chemicals industries and crude oil price exist,and the uni-directional mean and variance spillover effects running from crude oil prices to coal industry are revealed.There are bi-directional variance information spillover effects and uni-directional mean information spillover effects running from crude oil price to petroleum & petrochemical industry.In addition,the information spillover effect is not very stable.Finally,the oil price volatility has a significant positive impact on the stock market of Chinese basic industries,In particular,the coal and steel industries are affected most,and the fundamental chemicals industry least;however,the asymmetric volatility spillover effects between oil price volatility and six Chinese basic Industries nearly does not exist.The thesis concludes that China’s basic industrial markets are significantly affected by fluctuations in crude oil prices,and the establishment of China’s crude oil futures market will contribute to competing for crude oil pricing right and protecting China’s energy security.