China Spillovers: Aggregate and Firm-Level Evidence

We estimate the spillovers of demand- and supply-driven shocks in China to foreign countries and firms. We combine a Structural Vector Autoregression (SVAR) framework with a broad-based measure of domestic economic activity in China and narrative evidence on domestic shocks to distinguish supply versus demand components of Chinese growth. We then assess the responses to such shocks of GDP (revenue) in other countries (firms). The results suggest that: (i) global GDP responds more to Chinese supply shocks than to Chinese demand shocks; (ii) both supply and demand slowdowns in China are followed by declines in partner country GDP and firm revenue, especially in countries and firms with stronger trade linkages to China; and (iii) Chinese supply shocks have larger impacts on countries and firms with relatively stronger input linkages to China, while Chinese demand shocks have larger impacts on countries and firms with relatively stronger output linkages to China.