China’s Economic Spillover to ASEAN-6 Economies: Before and After Renminbi Internationalization

Abstract

In recent years, China become the second largest economy in the world. Therefore, China has an important role in the Asia and Global Economy. China’s rapid economic growth is the reason why Renminbi (China currency) becomes an international currency. On October 2016, Renminbi was recognized by International Monetary Fund (IMF) as an international currency by including it in global reserve currency (Special Drawing Right). Furthermore, Renminbi is in the top 10 traded currencies in the world even in Asia. In global trade, China has trade relation with various country, so it can provide benefit for country that have economic relations with China especially countries in Southeast Asia which is a member of ASEAN-China Free Trade Area (ACFTA). The purpose of Renminbi Internationalization is to increase China’s economic growth and spillover from China to ASEAN. China’s economic spillover to ASEAN has been growing in the few past years through financial linkage and trade linkage. This paper examines China’s economics spillover to ASEAN-6 (Singapore, Malaysia, Thailand, Philippines, Indonesia and Laos) before and after Renminbi internationalization through both trade and financial linkage. We use ratio of ASEAN-6’s exports and imports to China to its total exports and imports as a proxy of trade linkage and ASEAN-6’s Stock Price Index as a proxy of financial linkage, while we use claim and share of Renminbi in global foreign exchange reserve as moderator variable to find out whether the Renminbi internationalization can strengthen China’s economic spillover to ASEAN-6 or not. Thus, we use Moderated Regression Analysis and Panel Least Square method in 6 ASEAN countries from 2012:Q1-2018:Q4. The result indicate that Renminbi Internationalization can strengthen China’s economic spillover to ASEAN-6 economies that can be seen through trade linkage with an increase in imports and through financial linkage with an increase in Stock Price Index.