| The world is undergoing a great change unprecedented in a century,and the internal and external uncertainties of China are deepening under the interplay of major events at home and abroad such as the Trump Shock,the rise of external populism,the US-China trade dispute,the financialization of the real economy and the COVID-19 pandemic.Although the academic community has conducted extensive research on the impact mechanism and transmission channels of internal uncertainty,according to which the authorities can propose targeted countermeasures,the analysis on external uncertainty is still insufficient and policy tools to hedge against its negative impact appear to be inadequate.In particular,the current supply chain uncertainty triggered by the US technology sanctions against China and the ineffective prevention and control of foreign epidemics is superimposed on each other,making the supply chain security and stability issues extremely prominent.In view of this,the central government attaches great importance to the potential risks of sudden changes in the external environment,repeatedly stressed that "the external environment has changed significantly","adhere to the bottom line thinking"," be prepared to deal with the changes in the external environment in the long term ideologically and professionally ".In this context,the uncertainty of the external environment may become an important cause of systemic risk in China.In general,the occurrence and development of systemic risks are based on complex linkages among economic individuals(or sectors).Previous literature has focused more on the intrinsic linkages of important institutions such as finance and real estate sectors,and the network linkages among financial institutions have been considered as the contagion mechanism for individual risks to develop into systemic financial risks.However,with the continuous evolution of globalization,the cooperative division of labor among industries and enterprises in different countries in different production chains has formed narrow input-output linkages,and these chains are intertwined and overlapped to form a more complex global value chain network,which naturally becomes a contagion mechanism for the spread of risks across borders and regions.Especially in the context of deepening external uncertainty in China,GVCs may become the transmission channel and aggregation mechanism for external uncertainty to spread internally,and their unique network structure may import the real option effect of external uncertainty into the internal economy,triggering a chain reaction,leading to the synergistic resonance of the output of multiple domestic industries(or enterprises)and the associated financial assets(or sectors),inducing systemic risk and adversely affecting China’s financial stability.However,from the previous literature,most of the studies on how risks are transmitted from external to internal are from the perspective of financial market linkages and capital flows,and there is very little literature analyzing risk transmission from global value chains.This dissertation combines theoretical analysis with empirical research,and uses numerical simulation,mathematical derivation,complex network analysis,TVP-SVAR,Threshold-SVAR,BGVAR and panel data models to study the macroscopic representation and microscopic mechanism of the impact of global value chains on China’s financial stability under the perspective of external uncertainty.Then,this paper elucidates the research insights and policy logic of preventing and mitigating systemic risks from the perspective of global value chains.The specific research steps and findings are briefly described as follows.Firstly,based on mathematical deduction,this dissertation analyzes the logical mechanism of the impact of GVCs on China’s financial stability under external uncertainty.Specifically,the impact of external uncertain shocks on China’s financial stability through the global value chain can be divided into three steps:(I)external uncertain shocks may cause the intermediate goods output of external industries to shrink through the real option mechanism;(II)the shrinkage of intermediate goods output in external industries may further trigger risk aggregation and synergistic resonance in China’s internal industries through global value chain transmission and its unique structure;(III)risk aggregation and collaborative resonance of internal industries may be transformed into systemic risk in the financial sector under the pro-cyclical dynamic positive feedback mechanism of the internal real economy and financial system.Therefore,in this dissertation,two mathematical models and a graph model are constructed to deduce and clarify this mechanism step by step.Firstly,in order to prove step I,this dissertation builds a theoretical model based on Bloom(2007)to conduct numerical simulation.The result shows that under the shock of external uncertainty,the intermediate goods output of external industries is significantly shrinking,and it basically recovers after 6 months;Secondly,in order to explain step II,this dissertation uses Carvalho(2014)mathematical model and graphic model for logical deduction,and finds that the output fluctuation of external industry can be transmitted through GVC network,and the star-like GVC network structure can amplify the fluctuation and lead to the collaborative resonance of industries.In particular,from the perspective of internal and external economy,if supply hubs are concentrated outside and demand hubs are concentrated inside,it is more favorable for the supply-side(upstream)external uncertainty to trigger the risk aggregation and synergistic resonance of the internal industry.Conversely,if supply hubs are concentrated inside and demand hubs are concentrated outside,it is more favorable for the demand-side(downstream)external uncertainty to trigger the risk aggregation and synergistic resonance of the internal industry.Finally,this dissertation logically sorts out the connotation and extension of financial stability and systemic financial risk from related studies and finds that systemic financial risk is often manifested as a high degree of homogeneity and correlation among the components of the financial system.And the internal industry risk aggregation and synergistic resonance triggered by external uncertainty via global value chain transmission may be transformed into synergistic resonance of related financial assets and institutions through pro-cyclical mechanism,which in turn triggers systemic financial risk.Secondly,based on the UNCTAD-Eora and OECD Ti VA database,using the added value method of Koopman et al.(2014),and the physical distance method of Antras et al.(2012),this dissertation measures and compares the degree of China’s participation and position in the GVCs by different databases and methods,and analyzes the network structure of the GVCs by using Gephi and Network X.The result shows that,(1)the overall participation of China’s GVCs has gone through three stages: steady expansion,stage retraction and blocked development.The comparative analysis shows that the evolutionary characteristics of China’s GVC participation and embedded position calculated based on different databases and methods are basically the same(2)The network structure of the GVCs can be characterized as a small world and the role status of various industry sectors as input suppliers or demanders shows extreme inequality or imbalance,with very few industries having extensive input-output linkages with other industries,while most industries are not highly connected with each other.This indicates that global value chains have a star-like network structure,which is prone to induce risk aggregation and synergistic resonance among industries.(3)From the perspective of internal and external economy,almost all of the top ten supply hubs in the GVCs are external industries,and nearly half of the top ten demand hub industries are internal industries of China’s economy.Among them,Computer,electronic and optical products manufacturing industry has the largest demand hub among all the industries in the world,which indicates that the actual structure of GVCs network is more conducive to external uncertainty shocks of the supply side(upstream)of intermediate goods inducing risk aggregation and synergistic resonance in our industry.Thirdly,this dissertation quantitatively describes the China’s external environment uncertainty and financial stability,analyzes the time-varying impulse response of the latter to the former,and reveals the potential driving force of time-varying impulse response.(1)Based on the World Uncertain Index and taking the trade share as the weight,this dissertation calculates the overall uncertainty of China’s external environment.The measurement results show that the the trends of external uncertainty indicators calculated using different weights largely overlap,suggesting that it is difficult to to distinguish between supply-side and demand-side external uncertainty shocks by simply weighting them at the macro level;(2)Based on Hollo et al.(2012),in order to reflect the contagion,linkage and resonance between financial variables in the period of high systemic financial risk,this dissertation uses empirical cumulative distribution function to standardize the volatility of multiple financial market indicators,constructs the systemic financial stress index(CISS)with the time-varying correlation between volatilities as the weight,and takes it as the proxy index of China’s financial stability;(3)Using TVP-SVAR model to analyze the time-varying impulse response of China’s financial stability to external uncertain shocks,this dissertation finds that the time-varying feedback of China’s systemic financial stress to external uncertainty is positive,and it’s highly synchronized with the dynamic evolution of the degree of China’s backward(downstream)participation in the GVCs,indicating that GVC participation may be a potential driver of time-varying impulse response.Fourthly,based on Threshold BVAR and BGVAR models,this dissertation empirically analyzes the macro impact of China’s GVCs participation on its financial stability under the external uncertainty shocks,and finds that:(1)The deepening of China’s backward(downstream)participation of the GVCs significantly enhances the impact of external uncertainty on China’s financial stability,while the deepening of the forward(upstream)participation of the GVCs does not significantly enhance the impulse response of China’s financial stability to external uncertainty,indicating that the GVCs constitute a transmission channel for external uncertainty to affect China’s financial stability,and comparing with the downstream(demand side)external uncertainty,the upstream(supply side)external uncertainty shocks are more likely to induce the rise of China’s systemic financial pressure.(2)The impact of external uncertainty on China’s financial stability has been significantly enhanced by the increase of external industry’s outdegree and internal industry’s indegree,which means that the star-like network structure of GVCs and the industry distribution that supply hubs are outside and demand hubs are inside more easily leads to risk aggregation and collaborative resonance of the internal industry when the external uncertainty transmits from external upstream industry to internal downstream industry.(3)Based on the BGVAR model,this dissertation also calculates the time-varying risk spillover of China’s non-financial sector to the financial sector.The result shows that when China’s GVCs participation structure evolves towards the distribution which is more conducive to the internal systemic risk caused by the external uncertainty of upstream,the non-financial sector spills more risks into the financial sector,indicating that under the realistic structure that supply hubs are outside and demand hubs are inside,the internal industry risk aggregation and synergy resonance caused by external uncertainty transmission through the GVCs can be transformed into the overall risk of financial system through risk transmission among sectors.Fifthly,based on microcosmic industry data,this dissertation further examines the microcosmic mechanism of the impact of the GVCs on China’s financial stability.The empirical research using global industry panel data finds that uncertainty shocks can cause industry output contraction through real option mechanism,and industry output contraction can be transmitted to downstream industries through the GVCs network.Combined with the typical facts of GVCs star-like network structure,these empirical results indicate that the output shrinkage effect caused by uncertain shocks can lead to industry risk aggregation and collaborative resonance when it is transmitted along GVCs.From the perspective of internal and external economy,this dissertation uses the panel data model with the internal industry as the research object,and finds that the external uncertainty shocks in the upstream can lead to the increase of the individual risk and the contribution of systemic risk in the downstream industry of China,and this effect becomes no longer significant when the outputs of the upstream and downstream industries are controlled to be unchanged,indicating that the impact effect is caused by the transmission of output shrinking in the GVCs.The counterfactual analysis shows that the impact of external weighted uncertainty on China’s internal industry individual risk and systemic risk contribution is no longer significant after excluding the external hub industry’s uncertainty shocks,which indicates that the star-like structure of the GVCs and the industry distribution that supply hubs are outside and demand hubs are inside is the cause of internal industry risk aggregation and collaborative resonance.But the output shrinking effect of external uncertainties transmitted from downstream to upstream,leading to internal systemic risk,is not significant.The policy recommendations in this paper are as follows.First,the authorities can enhance the controllability of external uncertainty by strengthening international and regional cooperation and expanding multilateral and bilateral relations.Second,we should put the supply chain and industrial chain security issues in a prominent position,pay great attention to the secondary risks caused by supply chain disruptions and shortage of core components,insist on innovation as the first driving force,improve the level of industrial autonomy,and reduce the dependence of the internal industrial chain on external hub industries.Third,the relevant departments should improve the dual-pillar regulatory framework for monetary policy and macroprudential regulation,improve the institutional mechanism for regulation in accordance with the law,improve the financial system’s ability to prevent and resolve risks on its own,and further enhance the resilience of China’s economy and finance to withstand external shocks. |
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