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Cross-border financial risk transmission under China's bond market opening

Author

Listed:
  • Du, Yongshan
  • Zhang, Shuodi
  • Chen, Xiaoyijing
  • Chen, Jiaxiang

Abstract

This study investigates the Chinese real estate sector by employing a DCC-GARCH model to empirically assess the impact of offshore markets on credit spreads in onshore bond markets. Using a VAR model with impulse response analysis, we examine how offshore rating adjustments affect risk linkages between offshore and onshore bond markets. Regression analysis further verifies the impact of Chinese USD bond defaults on domestic issuance spreads across firms. Our results indicate significant offshore-to-onshore risk spillovers with time-varying features. Offshore rating downgrades amplify cross-market risk correlations and intensify contagion. Moreover, defaults in offshore USD bonds can propagate to the entire domestic issuance market, raising concerns about China's credit rating influence and the stability of offshore-onshore bond markets.

Suggested Citation

  • Du, Yongshan & Zhang, Shuodi & Chen, Xiaoyijing & Chen, Jiaxiang, 2026. "Cross-border financial risk transmission under China's bond market opening," Pacific-Basin Finance Journal, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:pacfin:v:98:y:2026:i:c:s0927538x26000685
    DOI: 10.1016/j.pacfin.2026.103122
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