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Crossing the Pacific: Spillover effects of US monetary policy on Chinese corporate investment

Author

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  • Lai, Huating
  • Sun, Weihong
  • Liu, Ding

Abstract

This study explores how shifts in US monetary policy influence the real investment activities of Chinese firms, considering both direct policy adjustments (first-moment effects) and the uncertainties surrounding those changes (second-moment effects). By applying a high-frequency identification framework and drawing on an extensive dataset covering all publicly traded, non-financial firms in China, we estimate the dynamic impacts of these policy disturbances. Our results show that tighter US monetary conditions tend to suppress firm-level investment, whereas rising uncertainty about policy direction stimulates it. These patterns are most evident among companies that are more liquidity-constrained, maintain lower debt ratios, and rely more heavily on international trade. Quantitatively, the financial constraint channel is the dominant conduit for US monetary spillovers, with corporate leverage and trade dependence playing smaller roles.

Suggested Citation

  • Lai, Huating & Sun, Weihong & Liu, Ding, 2026. "Crossing the Pacific: Spillover effects of US monetary policy on Chinese corporate investment," Pacific-Basin Finance Journal, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:pacfin:v:97:y:2026:i:c:s0927538x26000247
    DOI: 10.1016/j.pacfin.2026.103078
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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