The “International Trade Research Trend” section aims to release the latest research findings in the field of international trade published in authoritative Chinese journals such as “Social Sciences in China,” “Economic Research Journal,” “Journal of Management World,” “China Economic Quarterly,” and “The Journal of World Economy.” It strives to provide everyone with timely, accurate, and high-quality front-line dynamics in the field of international trade.

Economic Research Journal

Cross-border Capital Inflows, Riskiness of Credit Allocation and Banking System Stability

TAN Xiaofen,GENG Yaying and GOU Qin

Abstract: Promoting high-level financial openness is an important aspect of building a new development pattern of "dual circulation". This article explores how to prevent financial risks in the process of financial openness, and specifically studies how severe fluctuations in cross-border capital flows under financial openness conditions affect the stability of the banking system. Based on enterprise data from 53 countries and regions from 1991 to 2017, this article measures the credit allocation risk of banks among enterprises and explores its mediating effect on the impact of cross-border capital inflows on bank stability. Research has found that the influx of cross-border capital has changed banks' risk-taking behavior, increasing credit allocation risk through international risk-taking channels and reducing the stability of the banking system. Unlike FDI capital inflows, equity capital inflows and debt capital inflows are the main types that generate international risk-taking effects and increase bank risks. Implementing macro prudential regulatory policies can alleviate the impact of capital inflows on bank stability. This article deepens the understanding of the relationship between cross-border capital inflows, financial intermediary risk-taking behavior, and bank stability, providing micro evidence on how cross-border capital inflows affect bank stability. It has important implications for China to promote high-level opening up of the financial industry, improve the efficiency of financial services for the real economy, and prevent and resolve external risk shocks.

Keywords： Cross-border Capital Inflows;Abrupt Reversals in Capital Inflows;Riskness of Credit Allocation;Banking Stability

Research data: This article constructs credit allocation risk based on enterprise data from 53 countries and regions (26 developed economies and 27 emerging economies) from 1991 to 2017. The enterprise data comes from the Worldscope database. Capital flow data is sourced from the International Monetary Fund's Balance of Payments (BOP) data

Research Method: Empirical Analysis

Research contribution: The main contributions of this article are as follows: Firstly, it empirically advances the research on the international risk-taking channels through which cross-border capital inflows affect financial stability, deepening the understanding of the theoretical mechanism of the impact of cross-border capital flows on financial risks. The existing research on the relationship between cross-border capital flows and financial stability mostly focuses on examining the impact of capital flows on financial crises and fluctuations. In terms of mechanism research, research on credit prosperity is relatively complete, but empirical research on the effects of international risk-taking channels is still relatively lacking. This article finds that the credit allocation risk channel is an important mechanism for capital inflows to affect bank stability, emphasizing the important role played by banks' risk-taking behavior, which is a beneficial supplement to Caballero (2016). Caballero (2016) found that the influx of debt capital causes bank instability through the credit boom, but this channel cannot explain the positive relationship between the influx of equity capital and bank instability. This article finds that both debt and equity capital inflows increase bank instability through credit allocation risk channels, further enriching the mechanism by which capital inflows affect financial instability.

Secondly, it has expanded research on bank risk-taking. On the one hand, this article defines credit allocation risk based on enterprise level data, which provides a more intuitive and accurate measurement of banks' proactive risk-taking level, and provides evidence for the micro mechanism of capital inflows affecting financial risk. Existing literature attempts to empirically explore the impact of capital flows on international risk-taking, but mainly uses post credit risk indicators such as non-performing loan ratios to characterize changes in bank risk-taking behavior (Dinger&te Kaat, 2020), which cannot effectively distinguish whether changes in bank credit risk come from changes in bank risk-taking behavior or changes in the borrower's own risk. This article refers to Greenwood&Hanson (2013) and Brand ã o-Marques et al. (2022) to construct credit allocation risk, measuring how much credit borrowing companies with relatively higher risks receive compared to borrowing companies with relatively lower risks, and measuring the risk structure of bank credit allocation. From this, the active risk-taking of banks can be characterized, which can more accurately examine whether capital inflows affect the stability of the banking system by changing the bank's active risk-taking behavior. On the other hand, traditional banks' risk-taking channels focus on the impact of domestic monetary policy adjustments on banks' risk attitudes or risk tolerance. This article finds that capital inflows affect banks' credit risk allocation, providing evidence for external shocks affecting banks' risk-taking behavior and its consequences.

Thirdly, it enriches the research on capital inflows and bank stability. The existing literature on the impact of capital flows on financial risks focuses more on the influence of capital flow levels, and there is less research on the impact of capital flow volatility. The level of capital flow in an economy is related to its degree of openness and economic size. The rapid changes in capital flow in an economy, rather than the level of capital flow, are the key factors affecting financial stability (Caballero, 2016). In addition, this article also studied the sudden reversal of capital inflows, namely the impact of credit allocation risk on capital arrest, and comprehensively examined the entire process of capital inflows driving up credit allocation risk, financial risk accumulation causing capital flow reversal, and then the risk accumulation explosion of capital arrest.

JEL Classification： F21， F32， G21

Journal of Management World

Macro Effects of Imported Inflation: An Analysis of Price Divergence and Monetary Policy
Zhu Zixiang,Che Ming,Li Yujia
Abstract: As a major energy-demanding nation, the world's factory, and an open economy, China is affected by imported inflation. This paper systematically analyzes imported inflation's economic and policy impacts from empirical and theoretical perspectives. Evidence from SVAR shows that import price shocks are typical adverse supply shocks, driving inflation while suppressing economic activity. The effect of import price shocks on the Producer Price Index (PPI) is much  stronger than on the Consumer Price Index (CPI), and it also triggers a contractionary response in monetary policy. Counterfactual analysis indicates that the contractionary reaction of monetary policy mainly stems from the direct effects of import price shocks while also amplifying their negative impact. Subsequently, the paper constructs and estimates a mediumsized open economy model. The model introduces multiple types of imports and a monetary policy that targets imported inflation. Estimation results show that import price markup shocks explain most PPI variations over time but have limited explanatory power for the CPI. The model's fitted impulse responses are broadly consistent with empirical findings. The divergence in CPI and PPI prices primarily originates from compositional effects rather than the overall import share. The poor transmission of imported inflation to the CPI mainly arises from the weakening of the recession effect, which mitigates the rise in domestic marginal costs. Optimal monetary policy analysis indicates that when affected by import price shocks, allowing imported inflation to go unchecked and neglecting to maintain stable growth and policy continuity will lead to a lower level of welfare. The central bank needs to respond more actively to imported inflation to reduce the adverse effects on the PPI and investment.

Keywords: import prices; price divergence; open economy model; monetary policy

Research data: The import and export price data in this article are from the database of the General Administration of Customs of China, the US interest rate data is from the shadow interest rate of Wu and Xia (2016), and the rest of the data is from the National Bureau of Statistics. Research methods: theoretical models, empirical analysis

Research contribution: This article has made work and contributions in the following three aspects. Firstly, this article takes the general import price as an exogenous factor and empirically and theoretically analyzes the macroeconomic effects of input inflation and the endogenous response of monetary policy. Previous studies have mostly regarded import prices as endogenous variables, focusing on the transmission effect of exchange rates and the impact of tariff adjustments. From the perspective of research subjects, existing studies have mostly focused on the impact of commodity prices on the Chinese economy, lacking analysis of the entire import price. Although commodity prices are highly correlated with China's import prices, according to national customs data, commodities only account for about 20% of China's total imports. From a macro perspective, some studies have focused on the impact of input inflation on domestic inflation (China Economic Growth and Macro Stability Research Group, 2008; Lin Boqiang, Wang Feng, 2009; Army et al., 2012; Yin Libo, Han Liyan, 2014), without analyzing the recessionary effects and policy impacts of inflation. From the perspective of research methods, more studies focus on empirical analysis and time series methods, lacking analysis based on general equilibrium models. Although some studies use general equilibrium models, most of them are based on closed economy models (Liu Ming, Song Xiao, 2013; Wang Yunqing, 2014; Hou Chengqi et al., 2018), where oil, energy, or commodities are only used as production factors and do not consider the impact of imports, exports, and exchange rates. The theoretical model in this article fully considers the impact of import prices on consumption, investment, and even exports, which is more general and closer to China's reality.

Secondly, based on the open economy model, this article re examines the divergence phenomenon between China's CPI and PPI from the perspective of input inflation. Previous literature has mostly explained this issue from a domestic perspective (He Liping et al., 2008; Lv Jie, Wang Gaowang, 2015; Liu Fengliang et al., 2017; Mo Wangui et al., 2019; Lin Dongjie et al., 2019; Ni Hongfu, 2023a). Compared to domestic factors, existing research has paid insufficient attention to external factors. Hou Chengqi et al. (2018) and Wu Liyuan et al. (2020) found that the impact of commodity prices is a key factor leading to the sustained divergence between CPI and PPI based on the upstream and downstream vertical production structure model. The research of Hou Chengqi et al. (2018) and Wu Liyuan et al. (2020) is of great significance, but still worthy of expansion and improvement: firstly, the vertical production structure model only includes household consumption, and in reality, investment is the main source of economic fluctuations in China; Secondly, commodities only account for a portion of China's total imports, and the majority of imported goods are not commodities; Finally, the vertical production structure model is a closed economy model, and the impact of commodity prices is a purely exogenous factor. The model does not involve open economic characteristics such as trade composition, exchange rates, and capital flows, which are key to explaining the divergence between CPI and PPI and the transmission of input inflation.

Thirdly, this article attempts to analyze the impact of input inflation on monetary policy, and at the same time, study the optimal monetary policy for input inflation in an open economic environment. First, the question of "whether the People's Bank of China responds to imported inflation" seems simple, but there is no consensus. Secondly, current research on import price shocks and China's optimal monetary policy is mostly focused on a closed economy, and the optimal monetary policy in an open economy is different from that in a closed economy (Gali and Monacelli, 2005; Depali, 2009). Finally, existing research on input inflation often uses interest rates as an intermediary variable for monetary policy (Liu Ming, Song Xiao, 2013; Wang Yunqing, 2014; Hou Chengqi et al., 2018; Bian Xuezi et al., 2020). In order to ensure consistency between empirical and theoretical analysis, this paper adopts M2 as the intermediary variable for monetary policy. It should be pointed out that input inflation also exists in other countries around the world, so studying input inflation has important reference value for emerging markets and open economies.
JEL Classification: E31, E32, E52

Expenditure of Imported Pharmaceuticals under the Constraint of Triple Objectives: Structural Adjustment and Improvement Method during the Reform of Pharmaceutical Pricing

Yuan Xuedan, Mao Zhenhua,and Wang Jiana

Abstract: The rise of pharmaceutical import trade has satisfied the need of high-value medicines in the Chinese pharmaceutical market. However, the price and expenditure of imported pharmaceuticals remains at a high level in the long term, which brings social health insurance and citizens heavy economic burden. In order to promote the import of high-quality drugs, guarantee the supply of pharmaceuticals and ensure fair access to medicines within the controlled scope of pharmaceutical expenditure, this paper proposes three objectives of pharmaceutical import: scientific objectives, public objectives and capital objectives. Based on the theoretical analysis of triple targets, three objectives are measured. A trade gravity model embedded with triple targets and an optimized hedonic price model are established. We empirically analyze the impact of main factors related to the above targets on the cost and the price of imported drugs. The study finds that the growth direction of the expenditure of imported drugs in China is basically consistent with the development direction of capital goal, while the development direction of the public goal is not beneficial for import trade of pharmaceuticals. The scientific goal is ineffective. The coupling coordination degree among triple objectives has declined rapidly since 2017 due to the change of the public goal, which dropped from 0.9074 in 2016 to 0.2995 in 2018. The impact of public-oriented policies on cutting pharmaceutical price is influenced by the degree of market competition. This study provides reference for improving drug import policies and reducing people's economic burden of medication.

Keywords: imported pharmaceutical; triple objectives; pharmaceutical expenditure

JEL Classification: I10

The Journal of World Economy

Domestic and International Economic Cycles, Industrial Structure and Changes in the Aggregate Share of Labour Income

Tian Ye; Ni Hongfu; Xia Jiechang

Abstract: The evolution of domestic and international economic cycles is accompanied by changes in industrial structure, which in turn affects the aggregate share of labour income. This paper constructed a decomposition framework for domestic and international economic cycles and its factor structure of macro-labour income share changes, and the global input-output table from 1997 to 2020 is used for calculation and analysis. The findings suggest that: (1) The intra-industry effect is the dominant factor producing changes in China’s macro-labour income share at each stage, the industrial structure effect is also significant when China’s industrial structure undergoes major changes. (2) The contribution of the domestic economic cycle and that of the international economic cycle to changes in the macro-labour income share at each stage are opposite. The domestic economic cycle plays a dominant role in contributing to the industrial structure effects, the decline in the degree of domestic economic circulation will reduce the macro-labour income share. In other word, the greater the degree of international economic cycle (external circulation), the macro-labour income share is lower. (3) The expansion of domestic demand scale in the domestic economic cycle makes a significant positive contribution at all stages. The gradual increase in the proportion of service inputs in the domestic production network is also conducive to increasing China’s macro-labour income share. The expansion of final demand exports and the structural effects of international production networks on the international economic cycle further exhibit considerable positive effects at different stages.

Key words: macro-labour income share, industrial structure, domestic and international economic cycles, input-output model

Research data: The data in this article comes from the 2013 World Input Output Database (WIOD2013), the 2022 Asian Development Bank Multi Regional Input Output Table (ADBMRIO2022), and the China Competitive Input Output Table from 1997 to 2020.

Research methods: theoretical model, indicator measurement

Research contribution: The innovation and marginal contribution of this article are as follows: firstly, the research perspective is relatively new. There are few literature examining the U-shaped relationship between domestic and international economic cycles and China's macro labor income share. This article examines the impact of the complete domestic and international economic cycle and its structural factors on the macro labor income share. Secondly, it enriches the relevant research on the impact of domestic and international economic cycles on macro labor income share analysis. The theoretical logic of this article is based on how changes in the economic pattern affect changes in the industrial structure, which in turn affects the share of labor income. Thirdly, the factor structure decomposition method is more detailed. This article subdivides the final demand factors in various economic cycles into size, category structure, and industry structure, rather than only examining the classification structure of final demand. Therefore, it more accurately distinguishes the impact of changes in final demand types and industry structure upgrades on macro labor income share.

JEL codes: F63, F13

RMB Cross-Border Settlement Reform and Corporate Exports

Sun Puyang; Xu Qian; Yu Chunhai

Abstract: Based on the “List of Pilot Exporting Enterprises for Cross-border Trade RMB Settlement” launched by China in 2009, this paper examines the micro-level impact of the pilot local currency settlement policy on the export of Chinese enterprises and conducts an in-depth study of the impact mechanisms of variable and fixed exchange costs. The study finds that, first, the use implementation of local currency settlement can significantly promote corporate exports. Second, corporate exports, which are more sensitive to exchange costs, are more strongly influenced by the settlement reform. As exports to destination countries sign local currency swap agreements with China, variable exchange costs decline, significantly amplifying the impact the settlement reform has on them. On the other hand, non-intermediaries are more responsive to fixed exchange costs, making the reform more significant for their exports. Finally, after using the stacked DID and instrumental variables techniques to eliminate the influence of the border trade settlement reform advancement and pilot randomness, the fundamental conclusion remains valid. Overall, this paper employs the settlement reform to demonstrate the positive effect of cross-border trade local currency settlement on China’s exports from a business perspective, providing micro-evidence to further improve trade facilitation.

Key words: settlement method, exchange costs, corporate exports, border trade

Research data: The data used in this article mainly comes from the list of export enterprises in the cross-border trade RMB settlement pilot program, the China Customs database, and relevant enterprise information provided by the national tax investigation database.

Research methods: theoretical model, double difference method

Research contribution: The main research contributions of this article are as follows: Firstly, relevant studies on the economic impact of local currency settlement have found that it can effectively promote exports and improve social welfare levels. However, due to the lack of micro data, this conclusion cannot be effectively quantitatively analyzed at the enterprise level. This article fills the research gap by analyzing the export impact of local currency settlement at the micro enterprise level through the implementation of China's cross-border trade RMB settlement pilot, as well as detailed export and enterprise data; Secondly, there is still a lack of research on exchange costs in China, and the measurement of trade facilitation has not delved deeply into the settlement process. And this article uses the implementation of China's cross-border trade RMB settlement pilot as the basis for quasi natural experiments, focusing on the research of transaction costs and trade facilitation in the exchange link.

JEL codes: D23, F14, P21

External Demand and Upstream Supply Chain Adjustment: Supply Stabilisation or Chain Expansion and Strengthening

Peng Shuijun; Li Zhixu

Abstract: The world is experiencing unprecedented transformation, requiring the upstream supply

chain to not only be highly specialised and efficient, but also reliable and controllable. Drawing on the upstream and downstream corporate relationships inherent in the global value chain (GVC), this paper investigates the effect of downstream external demand expansion on the upstream supply chain layout of Chinese firms and its formation mechanism. Research reveals that firms integrated into the GVC build more stable upstream supply chains to ensure stable supply in the face of expanding downstream external demand. Meanwhile, firms’ incentive to innovate increases as the market expands, and the range of imported intermediate goods is enlarged to alleviate the technical and cost constraints that hinder innovation. Additional study demonstrates that the higher the firm’s position in the GVC, the greater the incentive to expand and strengthen the chain, while the lower the firm’s position in the GVC, the stronger the incentive to stabilise the chain. Finally, the study offers policy suggestions aimed at enhancing openness, stabilising the upstream supply chain, upgrading the GVC and optimising the domestic value chain (DVC).

Key words: external demand, upstream supply chain, stabilising the chain, chain expansion and strengthening

Research data: The export share of enterprises in the product destination layer comes from the China Customs Import and Export Trade Database from 2000 to 2013; The global trade flow data comes from the Product Trade (CEPII-BACI) database of the French Center for International Economic Research; Enterprise patent data is sourced from He et al. (2017); The remaining data comes from the China Industrial Enterprise Database from 2000 to 2013, the WIOD Inter country Input Output Table (2016 version), and other sources.

Research Method: Empirical Analysis

Research contribution: The marginal contribution of this article includes: firstly, from a research perspective, this article considers the upstream and downstream relationships of embedded value chain enterprises, studies the impact of downstream external demand on the upstream supply chain layout of Chinese enterprises and its formation mechanism, and focuses on examining the differentiated layout of upstream supply chains caused by the different global value chain positions of enterprises. Secondly, in terms of research methodology, this article constructs a series of upstream supply chain indicators for enterprises to reflect the stability of their upstream supply chains, and also incorporates major country relations into the indicator system. In terms of measuring the position of the global value chain, this article will introduce the value chain position indicator based on GVC production activities into the micro enterprise level. Thirdly, in terms of empirical research results, this article found that when enterprises embedded in GVC face downstream external demand expansion, they will build a more stable upstream supply chain out of the motivation of "stabilizing the chain and ensuring supply", mainly manifested in the diversification strategy of intermediate goods import sources. At the same time, the expansion of external demand brings innovation incentives. By increasing the variety of imported intermediate products, the technological and cost constraints of innovation can be alleviated, that is, "promoting innovation through openness" can achieve "expanding and strengthening the chain". Further research has found that when facing external demand expansion, the higher the position of the enterprise in the global value chain, the stronger the innovation incentive, and the more inclined it is to "expand and strengthen the chain"; Enterprises with lower positions in the value chain have a stronger motivation to "stabilize the chain and ensure supply", and will further reduce overseas supply chain risks through the strategic substitution of domestic value chains for global value chains. Against the backdrop of accelerating the restructuring of the global industrial chain and value chain, as well as China's continuous promotion of high-level opening-up, the conclusions of this study have important policy implications for preventing upstream risks, stabilizing the supply chain, promoting independent innovation, and achieving "expanding and strengthening the supply chain".

JEL codes: F10, F14, D22