..............................................................................3

................................................................................................5

...............................................................5

-

................................................................................................14

................................................................................................23

.......................................................................................................23

.................................................................................................31

?.....................................31

.....................................................................................40

" ".................................................................................................50

...........................................................................................................50

"International approach".............................................................................57

Mengjia G. The Impact of Financial Crisis on Real Economy in China and

Russia.................................................................................................. ...................57

2

!

-

-

-

3

4

-

-

5

-

-

-

XXI-

XX-

XIX- XX-

-

–

6

XX-1

2

– -

- 3

4

1 Deutsches Historisches Museum, http://www.dhm.de/2 Deutsches Historisches Museum, http://www.dhm.de/3 Delouche F. Europäisches Geschichtsbuch. Stuttgart.: Ernst Klett Verlag GmbH, 1992. P. 164 Deutsches Historisches Museum, http://www.dhm.de/

7

-

-

-

-

-

BASF, Bayer

–

XX-

8

–

-

-

–

–

–

–5

– -

5

-

..

9

–

–

-

6

-

–

6 SIPRI (Stockholm International Peace Research Institute), www.sipri.org10

-

-7.

–

-8

-

7 Le Monde Diplomatique / .-121.

8 SIPRI11

Nonghyup. 9

-

-

–

-

–

–

–

–

–

9 -URL: http://ria.ru/world/20130322/928541148.html

11.04.2014)12

NASA

-

10.

1. Le Monde Diplomatique / .

2. - 2003.

3.

-

http://ria.ru/world/20130322/928541148.html

4. Alcubierre M. The warp drive: hyper-fast travel within general relativity//

IOP science, 2005. URL: http://iopscience.iop.org/0264-9381/11/5/001

5. Delouche F. Europäisches Geschichtsbuch. Stuttgart.: Ernst Klett Verlag

GmbH, 1992. P.41.

6. Deutsches Historisches Museum. URL: http://www.dhm.de/

7. SIPRI (Stockholm International Peace Research Institute). URL:

www.sipri.org

10 Alcubierre M. The warp drive: hyper-fast travel within general relativity// IOP science, 2005. URL: http://iopscience.iop.org/0264-9381/11/5/001 (boeing website: 11.04.2014)

13

-

. .

"It is the policy of the United States to seek and support the growth of

democratic movements and institutions in every nation and culture, with the ultimate

goal of ending tyranny in our world"11

George W. Bush

12

11Bush pledges to spread democracy // CNN Politics. 2005. URL: http://articles.cnn.com/2005-

01-20/politics/bush.speech_1_ideologies-that-feed-hatred-bush-pledges-human-

freedom?_s=PM:ALLPOLITICS (Boeing website: 11.04.2014)12 Escriba-Folch A., Wright J. Dealing with Tyranny: International Sanctions and the Survival of

Authoritarian Rulers // International Studies Quarterly. 2010. Vol. 54. P.341.

14

13

- -

-

-

14

- -

-

- -

-

13

C.87.14 Escriba-Folch A., Wright J. Dealing with Tyranny: International Sanctions and the Survival of Authoritarian Rulers // International Studies Quarterly. 2010. Vol. 54. P. 344.

15

15 -

-

16

-

15 Andreas P. Criminalizing Consequences of Sanctions: Embargo Busting and Its Legacy // International Studies Quarterly. 2005. Vol. 49, No.2, P. 337.16 Escriba-Folch A., Wright J. Dealing with Tyranny: International Sanctions and the Survival of Authoritarian Rulers // International Studies Quarterly. 2010. Vol. 54. P.339

16

17

-

18

–

-

-19

-

-

-

17 Escriba-Folch A., Wright J. Dealing with Tyranny: International Sanctions and the Survival of Authoritarian Rulers // International Studies Quarterly. 2010. Vol. 54. P. 351.18 353.19

C.98.17

-

-

3- -20

-

21

20 Gordon J. Smart Sanctions Revisited // Ethics & International Affairs. 2011. Vol. 25, No.3, P.32021 Andreas P. Criminalizing Consequences of Sanctions: Embargo Busting and Its Legacy //

International Studies Quarterly. 2005. Vol. 49, No.2, P. 348.

18

-

22

-

-

– -

22 Andreas P. Criminalizing Consequences of Sanctions: Embargo Busting and Its Legacy //

International Studies Quarterly. 2005. Vol. 49, No.2, P. 352.

19

-

-

– targeted, smart

sanctions

- 23

24

-

-

23 Drulakova R., Rolenc J. M., Travníckova Z., Zemanova S. International Sanctions as a Tool of

Global Governance? The Case of the Czech Republic, 2010.24 Smart J. Sanctions Revisited // Ethics & International Affairs. 2011. Vol. 25, No.3. P. 316.

20

25

-

-

-

-

1)

25 Benvenisti E. Bottom-Up Constitutionalization of International Law: The Targeted Sanctions

Regime as a Case Study // Proceedings of the Annual Meeting (American Society of

International Law). 2010. Vol. 104, P. 463.

21

2) Andreas P. Criminalizing Consequences of Sanctions: Embargo Busting and

Its Legacy // International Studies Quarterly. 2005. Vol. 49, No.2, P. 335–

360.

3) Benvenisti E. Bottom-Up Constitutionalization of International Law: The

Targeted Sanctions Regime as a Case Study // Proceedings of the Annual

Meeting (American Society of International Law). 2010. Vol. 104, P. 462-

465.

4) Biersteker T.J. Council targeted sanctions and individual human rights //

International Journal. 2009. Vol. 65, No. 1, P. 99-117.

5) Bush pledges to spread democracy // CNN Politics. 2005.

URL: http://articles.cnn.com/2005-01-20/politics/bush.speech_1_ideologies-

that-feed-hatred-bush-pledges-human-freedom?_s=PM:ALLPOLITICS

6) Drulakova R., Rolenc J. M., Travníckova Z., Zemanova S. International

Sanctions as a Tool of Global Governance? The Case of the Czech Republic,

2010.

7) Escriba-Folch A., Wright J. Dealing with Tyranny: International Sanctions

and the Survival of Authoritarian Rulers // International Studies Quarterly.

2010. Vol. 54, P.335–359.

8) Gordon J. Smart Sanctions Revisited // Ethics & International Affairs. 2011.

Vol. 25, No.3, P.315-335.

9) Smart J. Sanctions Revisited // Ethics & International Affairs. 2011. Vol. 25,

No.3, P. 316-328.

22

.

-

23

II 1864

XX

24

-

-

25

- -

-

-

-

-

26

-

-

-

-

-

27

28

29

1.

ru

URL: http://www.polit.ru/article/2006/07/19/healthcare

2.

3.

4. . URL: http://www.gks.ru

5.

URL: http://ora.ffoms.ru/portal/page/portal/top/index

6.

.

". . 2007.

URL: http://ecsocman.hse.ru/text/16207180/

30

7.

ru

URL: http://polit.ru/article/2006/06/29/shishkin/

8. Tragakes, E., Lessof, S. Health care systems in transition: Russian Federation.

Copenhagen. : European Observatory on Health Care Systems, 2003. 197 P.

XX

26

26

- 2013. - -31

-

27

–

–

-

27

- 2013. - -32

28

29

-

28 , . 78.29 Quinlan M. High hopes for an independent Scotland's oil wealth // Petroleum Economist. March 25 2013. URL: http://www.petroleum-economist.com/Article/3177206/High-hopes-for-an-independent-Scotlands-oil-wealth.html (boeing website: 28.01.2014)

33

30

Scotland,

31

–

30 Thomson A. U.K. warns independent Scotland would have high risk in bank sector // The Wall Street Journal. May 19, 2013. URL: http://online.wsj.com/news/articles/SB10001424127887324787004578492862482509282(boeing website: 28.01.2014)31 Hannon P. Scotland's government makes case for independence. Independent Scotland would retain queen and pound // Wall Street journal. N.Y. 2013. URL: http://online.wsj.com/news/articles/SB10001424052702304465604579221632236871454(boeing website: 28.01.2014)

34

32

33

Microsoft, Google, Amazon

32 Kilgour R. Hosie S. Would an independent Scotland be bad for business? // Director. – 2012. No.65. - P. 30.33 Hannon P. Scotland's government makes case for independence. Independent Scotland would retain queen and pound // Wall Street journal. N.Y. 2013. URL: http://online.wsj.com/news/articles/SB10001424052702304465604579221632236871454(boeing website: 28.01.2014)

35

34

-

34 How would an independent Scotland fund its research? // Scottish Business Insider. 2013.36

- –

37

–

1. Can Scotland afford to be independent? // Scottish Government. May 21 2013.

URL: http://www.scotland.gov.uk/News/Releases/2013/05/scotland-can-more-

than-afford-to-be-independent210

2. Hannon P. Scotland's government makes case for independence. Independent

Scotland would retain queen and pound // Wall Street journal. N.Y. 2013.

URL: http://online.wsj.com/news/articles/SB100014240527023044656045

79221632236871454

3. How would an independent Scotland fund its research? // Scottish Business

Insider. February 8 2013.

4. Kilgour R. Hosie S. Would an independent Scotland be bad for business? //

Director. – 2012. No.65. - P. 30.

5. King C. The Scottish play: Edinburgh’s quest for independence and the future of

separatism. // Foreign Affairs. - 2012. Vol. 91(5), P.113-124.

6. Lamont J. An independent Scotland would have to re-apply to join the EU // Dec 6

2012.

7. Levin B. Scotland - being different // Phi Delta Kappan. 2011. Vol. 93. Issue 4,

P.74-75.

8. Quinlan M. High hopes for an independent Scotland's oil wealth // Petroleum

Economist. March 25 2013. URL: http://www.petroleum-

economist.com/Article/3177206/High-hopes-for-an-independent-Scotlands-oil-

wealth.html

9. Serious gaps in an independent Scotland's future foreign policy // UK Parliament.

May 01 2013. URL: http://www.parliament.uk/business/committees/committees-a-

z/commons-select/foreign-affairs-committee/news/scotland-substantial/

38

10. Service A. Scotland's economy in numbers // Business Insider. Apr 30

2008. URL: http://www.labour.org.uk/an-independent-scotland-would-

have-to-re-apply-to-join-the-eu

11. Thomson A. U.K. warns independent Scotland would have high risk in bank

sector // The Wall Street Journal. May 19,

2013. URL: http://online.wsj.com/news/articles/SB1000142412788732478700457

8492862482509282

12.

- 2013. - - -89.

13.

- 2012.

- - -96.

39

-

-

40

-

-

-35.

35 c.194.41

36.

36 -

11.04.2014)42

-

37

-

37 URL: http://www.hrights.ru/text/b10/Chapter1.html

43

38

39.

-

38 - URL: http://www.levada.ru/20-11-2009/rossiyane-o-smertnoi-kazni39 .

44

40.

-

41

42.

40 Resolution 1647 // Parliamentary Assembly of the Council of Europe. 2009. URL: http://assembly.coe.int/Main.asp?link=/Documents/AdoptedText/ta09/ERES1647.htm41 URL:http://www.coe.int/T/r/ParliamentaryAssembly/Russiandocuments/2008/Nov2008/Res1631_rus.asp42 c.214.

45

43

-

». 44

43 c.228.44

URL:http://www.coe.int/T/r/Parliamentary_Assembly/%5BRussian_documents%5D/%5B2007

46

-

–

45

46.

45

46

URL:

http://www.rbc.ua/rus/news/politics/pase_vyrazila_obespokoennost_otnositelno_monopolizatsi_

rynka_gaza_v_rossii__1169662443

47

1)

2)

URL:http://www.hrights.ru/text/b10/Chapter1.html

3)

ru - URL:

http://inosmi.ru/russia/20120126/184028912.html

4) - . URL: http://www.levada.ru/

5) -

6) URL: http://www.coe.int

7)

URL: http://www.rbc.ua/rus/news/politics/pase_vyrazila_obespokoennost_otnosite

lno_monopolizatsi_rynka_gaza_v_rossii__1169662443

48

8) Resolution 1647 // Parliamentary Assembly of the Council of Europe.

2009. URL:

http://assembly.coe.int/Main.asp?link=/Documents/AdoptedText/ta09/ERES1647.

htm

49

.

–

50

-

-

–

51

47

48

-

–

-

–

47 – –48

- - –52

–

49

wifi-

49

53

-50 –

-

51

–

50

- – –51

54

52 53

-

).

–

52 –- URL:

http://base.consultant.ru/cons/cgi/online.cgi?req=doc;base=LAW;n17.04.2014)53

- URL:http://base.consultant.ru/cons/cgi/online.cgi?req=doc;base=MLAW;n=127172 –

55

1. – –

2.

-

- -

3.

4. -

URL:http://base.consultant.ru/cons/cgi/online.cgi?req=doc;base=MLAW;n=12717

2

56

"International approach"

The Impact of Financial Crisis on Real Economy in China

and Russia

Mengjia Gao

Abstract

Five years after the eruption of 2008 financial crisis, global economic

growth is fraught with further challenges and risks. The Euro crisis and US fiscal

shock brought a shrinking international trade, and thus posed challenges and risks

to transitional economies. This paper examines how financial crisis in developed

economies affected the real economies of China and Russia.

Based on analysis of real economy and inflation, FDI, labour market and

industrial policy, it was stated that financial fragility in developed markets spread

to the real economies via monetary channel, credit channel, capital cost channel

and exchange rate channel of China and Russia, although these two economies

have different economic fundamental scenarios.

The implication of risk transmission theory holds that the policymakers need

to support financial stability and maintain stable noninflationary growth. While

financial and international trade are deepening the synchronized risks, industrial

policies could adopt economic divarication incentives to moderate risk

transmission over the medium and long term.

Introduction

Five years after the eruption of financial crisis in 2008, global economic

growth is fraught with further challenges and risks. The developed economies were

weakened due to sovereign debt distress, caught in the double-dip recession, with

57

high unemployment, tightened fiscal austerity, significant public debt as well as the

financial uncertainty. In the major transitional economies, growth has also

decelerated significantly.

For example, emerging markets’ development slowed down, indicating not

only external vulnerabilities but also their domestic challenges.

Graph1: World Real GDP Growth 1991-2013

Source: International Monetary Fund

According to the empirical analysis financial crisis are synchronized with

real economy downturn. However, comparable analysis of the economic scenario

as well as the updated data on China and Russia is limited.

Among the BRICs countries (emerging markets, Brazil, Russia, India, China

and South Africa), China and Russia transcend from planned- economy to market

oriented economy, and benefited from their trade with the developed markets.

What are the effects of 2008 financial crisis on real economy in China and Russia?

How does the financial sector transmit the risks and returns to labour market,

industrial Research and Development, and Foreign Direct Investment in China and

Russia? Thus this essay will compare and contrast the linkage between financial

crisis and real economic growth, in order to analyse the effects of 2008 financial

crisis on real economy of China and Russia.

The essay will begin with literature review of theoretical studies of

58

transmission mechanism. Based on the transmission channel theory, the role of

financial sector in Chinese and Russian real economies will be evaluated.

Furthermore, this essay will examine and discuss the implication of transmission

channel theory in qualitative case studies.

Literature Review

The correlation of the financial crisis theory with the real growth of an

economy is one of the main reasons why it attracts economists’ attention.

Literature review in this paper will be focused on the mechanism of

financial crisis on real economy. There are four main mechanisms: monetary

channel, credit channel, exchange rate volatility channel, and capital cost channel.

1. Monetary Transmission

Friedman and Schwartz (1963) tested monetary factors in real economic

cyclical fluctuations. According to Friedman and Schwartz, the money stock

illustrates a systematic behavior. The economic interrelationship could fully

explain how monetary changes can produce cyclical fluctuations in real economy’s

income and expenditure.

Alternatively, Minsky (1991) argued that each success in prevention of a

financial crisis led to further risk taking and hence a more fragile economy.

Furthermore, decision making in investment and finance is the critical factor that

will cause income and employment in real economy to fluctuate.

2. Credit Transmission

In light of the “credit channel theory”, credit demand and credit supply are

analyzed:

For credit demand, Bernanke and Gertler (1995) explained the tight-money

periods would depreciate the value of financial assets and hence change firms’

ability to obtain credit. Moreover, Klyotaki and Moore (1997) further linked the

financial asset depreciation with negative investment and consumption change.

For credit supply, due to economic uncertainty, financial institutions would

contract their credit supply. Credit restriction would depress the investment and

59

consumption. Furthermore, the domestic economic multipliers would lower

aggregate income, according to Bayoumi and Melander (2008).

The analysis conducted by Greenlaw et al (2008) concluded that the linkage

between real economy decline and credit market is a negative loop. Firms have

difficulty to repay their deposits, which increased the defaults. Banks have

difficulty to maintain their liquidity and are forced to strain their lending standards.

Thus, the credit demand and supply would be worsened during financial crisis.

3. Exchange Rate Transmission

Financial crisis could transmit currency turmoil to real economy. In theory,

the exchange rate volatility will lead to dramatic currency depreciation, resulting in

deterioration of real GDP growth, employment, and consumption. Moderating the

currency vulnerability could therefore stabilize domestic trade, Mckinnon (2000).

In accordance to Goulas and Zervoyianni (2013), maintaining a lower exchange

rate fluctuation could generate investment incentives and long-term growth.

4. Capital Cost Transmission

One of the most crucial parts in financial- crisis economy is to rebalance

reduce the negative impact of fluctuation on the cost of capital. McKinsey Global

Institute (2010, December) analyzed the post-crisis capital cost. The adjustments of

international and domestic factors in real economy are determined by the capital

cost channel during financial crisis.

China and Russia Real Economy Case Study

Most economists agree that the definition of real economy is opposite with

financial economy. The real economy is compound of aggregate service and

product output (Cochrane, 2005). While macroeconomic cycle is evaluated in

output, investment, and employment, this essay will explore aggregate output

(GDP) and inflation, foreign direct investment (FDI), industrial Research and

Development (R&D), as well as labour market in post-financial crisis period.

1. GDP and Inflation

The economic depressions of the financial sectors are surging to real

60

economies in transition. Business cycles are synchronized with weaker demand for

exports, elevated vulnerability of FDI and heightened volatility in commodity

prices in China and Russia. Graph 2 and Graph 3 not only show the output decline

in Russia and China during the financial crises 2008, but also illustrate the

dramatic market dip in China and Russia, compared with world’s average standard.

Compared to Chinese, Russian economy has a higher volatility, for its higher

dependence on natural resource export as well as its domestic economy scale.

Alternatively, measurement of the inflation is crucial to assess the household

purchase power in transitional economy (Arthur and Sheffrin, 2003), such as

China and Russia. The inflation rate in China was 2 percent in January 2013,

according to the National Bureau of Statistics of China (2013). The most important

components of the CPI basket are Food (31.8 percent weight) and Residence (17.2

percent), which are the basis on household maintenance in China. During the

financial crisis, the inflation rates in both China and Russia was volatile, while

Russia has a higher fluctuation comparatively. China experienced the highest

inflation rate of 8 percent in 2008, when the output dropped to the dip meanwhile.

From 2010 Chinese inflation rate stabilized at the range between 2 and 6 percent.

Comparably, the inflation rate in Russia was 7.10 percent in January of 2013

(Federal State Statistics Service, 2013). In Russia, food and non-alcoholic

beverages (30 percent weight) as well as transport (14 percent) are recorded as the

most substantial category in the Costumer Price Index. The peak of inflation rate

during business cycle was 15 percent in 2008, but it dropped to 6 percent in the

mid-2010, and maintained above 4 percent with lower fluctuation. The illustrations

on GDP and inflation of China and Russia thus show a high correlation of

aggregate output and financial crisis.

First, the business cycle in the Europe and the United States is spilling over

to transitional economies, such as China and Russia. While China and Russia are

significantly relying on exports, the weaker demands from the EU and US

decelerated China’s output of manufacture and Russia’s export of commodity.

61

Secondly, a higher volatility in capital flows and commodity prices in the global

financial markets are affecting the further growth of China and Russia economies.

Also, external financial fragility triggered the home economic problems in China

and Russia, for example the domestic fiscal policy and industrial imbalances.

To further analyze the relevance, the foreign direct investment (FDI),

industrial Research and Development (R&D), and labour markets are studied in the

following parts

Graph2: China and Russia GDP Growth 1990-2012

Source: International Monetary Fund

Graph3: China and Russia GDP Growth Rate 1990-2012

Source: International Monetary Fund

62

Graph4: China and Russia Inflation Rate Jan 2005- Jan 2013

Source: National Bureau of Statistics of China and Russian Federal State

Statistics Service

2. FDI in China and Russia

The financial crisis starting from the developed markets led to capital out

flows in most emerging markets. According to the UNCTA data (2012), the inward

FDI change rate in Russia fluctuated significantly over 2007-2010, with the lowest

at minus 56%, while inward FDI in China inclined steadily at an estimated rate of

10%.

Graph 5: Annual FDI Inward Stocks (US Million Dollars at 2012 exchange

rate) in China and Russia over 2001- 2011

Source: UNCTA

63

Graph6: Percentage Change of Annual FDI Inward Stocksin China and

Russia over 2001- 2011

Source: UNCTA

For Russian economy, the capital flow vulnerability as well as monetary

policy spillovers from developed markets led to a high imbalance of global

commodity price. Since 15.3% of the FDI in Russia was concentrated in energy

fields (Russian Federal State Statistics Service 2010), vulnerability of FDI caused

sharp price drop of commodity (including cruel oil and natural gas). In global

market the commodity depreciation affected the wealth generation in Russian

economy, through not only the exchange rate channel but also the capital cost

channel, and thus financial crisis in developed economies transmitted credit risks

to Russian commodity markets. A dramatic deceleration in fuel exports was a

crucial factor in Russian economy recession and wealth depreciation. Cyclically,

the real economy was losing its attraction for further inward capital from abroad.

Although the inward FDI growth rate maintained steady in Chinese market,

the synchronized risk was transmitted from global commodity markets to China,

due to its considerable rate of reliance on fuel commodity. Estimated 60% to 80%

of Chinese domestic output relied on oil energy (according to the US Energy

Information Administration Analysis, 2012), volatility and uncertainty in global

commodity markets brought higher production cost to Chinese economy. Further,

as oil-importing country, Chinese economic output weakened, due to higher import

costs from exporters and declining external demands from the developed markets.

For example, the Quantitative Easing (QE) policy from developed markets fueled

the fragility in China- US currency exchange rate. Speculators increased their

expectations in Chinese currency return, fueling an increase of exchange rate in

China, while Chinese exchange reserve depreciated and exports weakened.

High fluctuation in commodity (food and oil) prices could transmit

downside risks by depressing Chinese domestic demand and contracting the space

of monetary policies to stimulate growth. In global markets, inflation expectations

64

have remained well stabilized, supported by relatively anchored food prices.

However, in China and Russia economies there could be budgetary volatility in

fuel and food subsidies, for their significant share in CPI baskets.

Graph 7: Global Commodity Price Index (measure price index in 2000=

100)

Source: Source: UNCTA

3. Labour Market

Trade-channel effects exerted a powerful downward pull on China and

Russia labour markets. The vulnerability of trade impacted aggregate investment

and employment in export-oriented sectors, in the scenario of euro crisis and US

“fiscal cliff”.

However, effects of financial crisis on employment situation vary between

China and Russia. Although both China and Russia witnessed high elevated

unemployment rates during 2008, the rise of unemployment rate settled at the

range between 4% and 5%, while Russian unemployment rate fluttered from 5% to

9%. In accordance to the United Nation Global Economic Outlook (2013), the

skills of unemployed population deteriorated in China and Russia during financial

crisis. Aggregately, the higher percentage of unemployed worker is impacting the

Russian and Chinese productivity in the long term.

65

Due to the shrink of manufacture industry, unemployment rate in export-

related sectors rose significantly. While China is utilizing the domestic stimulus

policy to create job opportunities, the trade-off between unemployment rate and

local government debts created risks for long-term economic growth. Alternatively,

Russian government spending was increasing due to its notable job creation.

Graph8: Unemployment Rate in China and Russia over 2005-2013

Source: National Bureau of Statistics of China and Russian Federal State

Statistics Service

4. Government Expenditure and Industrial Transformation

Economic slowdown led to noticeable government spending in China and

Russia over 2008-2009. In the fiscal stimulus package, Chinese government spent

4 trillion RMB for infrastructure investment, which formed short-term economic

growth engine. Meanwhile, the large-scale government expenditure also increased

inflation rate, government debts and concerns over real estate bubbles. In 2011,

Chinese government started to put its efforts on industrial transformation, rather

than domestic demand stimulus. The fiscal policy and monetary policy spillovers

started to rebalance the real economy via the monetary channel, accordingly.

66

Graph9: Government Debt/GDP Ratio in China and Russia over 2000-2013

Source: National Bureau of Statistics of China and Russian Federal State

Statistics Service

Through fiscal and monetary channel, China and Russia economy are

restructuring their economy after 2009. The fiscal policy in China got re-oriented

to the linkage between job-creation and green-growth, while its aggregate economy

slowed down. Meanwhile, Russia joined the World Trade Organization and

implemented economic reform policy. Governments in China and Russia enhanced

public spending on health, education, R&D, and green energy to create energy

sustainable growth incentives. Furthermore, industrial policies in both China and

Russia are employed to support the economic diversification and to moderate risks

of economic dependence on manufacture and fuel energy export in China and

Russia, respectively.

Conclusion

This paper examined how financial crisis in developed economy was

transmitted to real economies in China and Russia. The Euro crisis and US fiscal

shock brought a shrinking international trade, and thus posed challenges and risks

to transitional economies.

Based on analysis on real economy and inflation, FDI, labour market and

67

industrial policy, it is found that financial fragility in developed markets was

spread to the real economies via monetary channel, credit channel, capital cost

channel and exchange rate channel in China and Russia, although these two

economies have different economic fundamental scenarios.

The implication of risk transmission theory holds that the policymakers need

support financial stability and maintain stable noninflationary growth. Since

financial and international trade are deepening the synchronized risks, industrial

policies could adopt economic divarication incentives to moderate risk

transmission over the medium and long term.

References

1. O’Sullivan A., Steven S. M.. Economics: Principles in action. Upper

Saddle River. New Jersey: Pearson Prentice Hall. 2003. p. 592

2. Bernanke B., Gertler M. Inside the Black Box: The Credit Channel

of Monetary Policy Transmission // Journal of Economic Perspectives. 1995. Vol.

9. No. 4. P. 27–48.

3. Bayoumi, T., Melander. O. Credit Matters: Empirical Evidence on

U.S. Macro-Financial Linkages

URL:https://www.imf.org/external/pubs/ft/wp/2008/wp08169.pdf (boeing

website: 21.04.2014)

4. Bernanke B., Gertler M. Financial Fragility and Economic

Performance.// Quarterly Journal of Economics. 1990. Vol. 105. No. 1. P.87 –

114

5. Campello M., Graham, J.R., Harvey, C. R. The real effects of

financial constraints: Evidence from financial crisis.// Journal of financial

Economics, 2010. No. 97 (3). P. 470 – 487.

6. Cochrane, J.H. Financial Markets and the Real Economy.//

Foundations and Foundations and Trends in Finance. Vol. 1, No. 1, 2005. P.1-101

68

7. Minsky, Hyman P. Stabilizing an Unstable Economy. New Haven,

Conn.Yale University Press. 1986. p. 350

8. Minsky, H. P. The Crises of 1983 and the Prospects for Advanced

Capitalist Economies.

URL:http://digitalcommons.bard.edu/cgi/viewcontent.cgi?article=1082&context=h

m_archive

9. Minsky H. P. The Financial Instability Hypothesis: A Clarification./

In Feldstein M., ed. The Risk of Economic Crisis. Chicago: University of Chicago

Press.1991. P. 1 – 21

10. Minsky H. P., Ferri P. Market Processes and Thwarting System.

Working Paper No. 64.The Jerome Levy Economics Institute, New York:

Annandale-on Hudson. 1991

11. McKinnon, R. The East Asian Dollar Standards, Life after Deaths? //

Economic Notes. 2000. Vol. 29. No. 1. P. 31-82.

12. McKinsey Global Institute. Farewell to cheap capital? The

implications of long-term shifts in global investment and saving.

URL:http://www.mckinsey.com/insights/global_capital_markets/farewell_cheap_c

apital

13. US Energy Information Administration Analysis.2012. "China Energy

Analysis", URL:http://www.eia.gov/countries/analysisbriefs/China/china.pdf

69