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A Study on China’s Deleveraging and Financial Stability Under the Background of Financial Globalization

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  • Zhimin Zhang
  • Xin Kai

Abstract

This paper studies the impact of financial globalization and leverage ratio on China’s financial stability. After the 2008 financial crisis, maintaining the stability of the financial system is China’s core task. However, due to the increasing degree of China’s opening up policy, the risk of foreign shock is increasing. Meanwhile the domestic policy of deleverage is implemented, so the superposition of domestic and foreign situations aggravates the uncertainty of financial stability. Therefore, this paper selects the relevant variables to empirically study the real impact of financial globalization and leverage ratio on China’s financial stability through VAR model. The results show that the indicators of financial stability are most affected by their own inertia, and the deepening of financial globalization and the increasing of leverage ratio will have a positive effect on financial stability at the beginning, but in the later stage it fluctuates a lot. Based on the findings, the China government should put more emphasis on dealing with the relationship between leverage ratio, foreign risks and financial stability when making domestic financial policies.

Suggested Citation

  • Zhimin Zhang & Xin Kai, 2021. "A Study on China’s Deleveraging and Financial Stability Under the Background of Financial Globalization," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(8), pages 1-8, August.
    • Handle: RePEc:ibn:ijefaa:v:13:y:2021:i:8:p:8
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    References listed on IDEAS

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    1. repec:hal:wpspec:info:hdl:2441/f6h8764enu2lskk9p5296ie95 is not listed on IDEAS
    2. Romain Bouis & Ane Kathrine Christensen & Boris Cournède, 2013. "Deleveraging: Challenges, Progress and Policies," OECD Economics Department Working Papers 1077, OECD Publishing.
    3. Creel, Jérôme & Hubert, Paul & Labondance, Fabien, 2015. "Financial stability and economic performance," Economic Modelling, Elsevier, vol. 48(C), pages 25-40.
    4. repec:hal:spmain:info:hdl:2441/f6h8764enu2lskk9p5296ie95 is not listed on IDEAS
    5. repec:hal:spmain:info:hdl:2441/35ph3mv7tn80ur0ii4gg6m5tir is not listed on IDEAS
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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