Risk spillovers in Chinese production network: A supply-side shock perspective

Abstract

Highly interconnected production network exists in one economy, and it is crucial to investigate how and why supply-side shocks spread across industries via the production network and cause systemic risks in the real sector. Based on input-output framework, this paper designed a model to simulate the propagation of risk spillovers along the production network given supply-side shocks. This paper defined the systemically important industries (SIIs) and systemically vulnerable industries (SVIs) according to the degree and direction of risk spillovers. Simulation results show that risk spillovers spread among industries via the production network, leading to systemic risk in the real sector. This paper also classified the important risk spillover paths “SVIs → SIIs → SVIs” in the model for risk regulation and prevention and identified 75 risk spillover paths and 9 closed-loop paths in 2018. Furthermore, key factors of systemic importance (vulnerability) included input-output relationships and production network centrality. This paper provides a scientific basis to strengthen the risk supervision of the real sector based on the supply chain.