Discussion Paper Series 2011-E-2

Macro-financial Linkage and Financial Deepening in China after the Global Financial Crisis

Kumiko Okazaki, Tomoyuki Fukumoto

As China's economic integration with the global economy deepens, the amount of capital flow to/from China has been increasing significantly, especially since it joined the WTO. In spite of such environment, the recent global financial crisis has not severely affected the Chinese financial markets because of China's relatively strict control of cross-border capital transactions and its strong economic and financial fundamentals. The government's stimulus policies worked effectively to realize a quick recovery of the country's economic growth. However, on the horizon, the factors that protected the Chinese economy during the crisis also seem to carry with them substantial risks and challenges to its sustainable growth. This paper reviews the factors that have kept the Chinese economy and financial markets relatively stable and analyzes the recent changes in China's macro financial linkage overseas, and highlights the challenges that China faces in realizing a sustainable and efficient economic development.

Keywords: Macro-financial Linkage; Financial Deepening; Cross-border Capital Flow; Bank Lending


Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2011 Bank of Japan All Rights Reserved.

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