The Transmission Mechanism of China-Japan Economic Co-Movement and Stabilizing Measures for China’s Economy

Abstract

How does the economy of China and Japan interact with each other? Through building vector autoregression (VAR) model, this study examines the transmission mechanism of economic synchronization among the two nations from three perspectives, namely foreign direct investment (FDI), bilateral trade, and political relation. Based on this, relevant stabilizing measures for China’s economy are proposed. The findings of this study are as follows: (a) There exists business cycle co-movement between China and Japan. (b) The transmission mechanism of this co-movement contains bilateral trade and FDI. Therein, import contributes the most to China’s economic fluctuation, which is followed by FDI and export. (c) Bilateral political relation exerts indirect influence on China-Japan economic synchronization. (d) The impact of Japan’s economic fluctuations on the economy of China would be mitigated by expanding international trade markets, reducing financial market access restrictions, strengthening the political mutual trust, and encouraging communications between China and Japan in science, technology, and education, etc.