A comparative analysis of financial innovation : between Germany and China following the 2007/9 financial crises

Abstract

Within the last two decades, China and Germany`s economy has emerged as a major player in the world economy. China and Germany`s high GDP growth has changed the distribution of economic activities across the world. China and Germany has become a major hub of intra-industry trade. From this point of view, China and Germany may become the engine of the world economy. It is more important than ever to know how China and Germany responds to the global economy, especially the global F.C. and ongoing concerns regarding US recession. This paper provides a brief review of China and Germany`s economic position in the world economy, discusses the spill over effects of the global F.C. on China and Germany`s financial markets and the real economy, presents and critiques alternative ways of estimating these effects, and analyses the reasons for the limited impact of the global crisis on China and Germany. One interesting result is that while China and Germany was not one of the countries hardest hit by the crisis, neither was it as insulated as many have assumed. While its high growth rate during the crisis was the envy of most other countries, China and Germany's growth was substantially lowered by the crisis, suggesting that the decoupling of China and Germany's growth from the advanced countries may not be as great as many popular analyses have suggested. The paper also provides a discussion of the major challenges facing China and Germany for a sustainable growth. This paper provides a brief review of the Financial innovations (F.I.) adopted by China and Germany in response to the F.C. of 2008-2009. It presents and critiques alternative ways of estimating these effects. Contrary to much popular discussion, China and Germany was hit fairly hard by the global recession generated by the last financial crisis (F.C.). It suffered a huge drop in exports, and these effects on the economy were only partially offset by China and Germany's huge stimulus program. While growth remained well above international averages, its drop was of the same order of magnitude as for the U.S. The paper closes with a brief discussion of some of the major challenges facing China and Germany to rebalance its economy in order to sustain high growth.