Does China’s Foreign Exchange Market Volatility Affect Agricultural Loan Market Volatility?
Abstract
Background and Aims: China's foreign exchange (Forex) market has become increasingly volatile due to global economic shocks and domestic financial reforms. This volatility poses potential systemic risks to interconnected markets, including the agricultural loan market. Given the centrality of agriculture in China’s export profile and its dependence on specialized credit mechanisms, understanding how foreign exchange fluctuations impact agricultural finance is critical. This study investigates whether volatility in China’s foreign exchange market generates spillover effects on the agricultural loan market. It specifically explores the direction and time-varying nature of these effects and examines the mediating role of agricultural exports in this transmission process.
Methodology: A Time-Varying Parameter Stochastic Volatility Vector Autoregression (TVP-SV-VAR) model is employed to analyze quarterly data from Q3 2011 to Q4 2023. The model integrates three variables: Forex volatility (measured via RMB/USD parity rate log returns), agricultural exports (from the Ministry of Commerce), and agricultural loan market volatility (based on adjusted loan balance data). Bayesian inference and MCMC methods are used for robust parameter estimation.
Results: The findings indicate that Forex market volatility exerts significant but predominantly negative effects on agricultural loan market volatility in the short- and medium-term, challenging conventional expectations of positive spillovers. Agricultural exports, however, respond negatively to foreign exchange shocks, while their recovery has a positive impact on agricultural loan volatility. These results confirm that exports serve as a critical transmission channel. Policy resilience—via credit guarantees and export subsidies—helps buffer short-term effects, although systemic risks accumulate over time.
Conclusion: Foreign exchange volatility influences agricultural loan markets in a dynamic, time-varying manner, with agricultural exports acting as a key conduit. While China's policy interventions have mitigated immediate impacts, long-term resilience demands adaptive strategies. These insights offer valuable guidance for policymakers seeking to enhance financial stability in sectors vulnerable to external financial shocks.
Article Details
How to Cite
Section
Articles
Copyright & License
Copyright (c) 2025 International Journal of Sociologies and Anthropologies Science Reviews
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Copyright on any article in the International Journal of Sociologies and Anthropologies Science Reviews is retained by the author(s) under the under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. Permission to use text, content, images, etc. of publication. Any user to read, download, copy, distribute, print, search, or link to the full texts of articles, crawl them for indexing, pass them as data to software, or use them for any other lawful purpose. But do not use it for commercial use or with the intent to benefit any business.
References
Ameh, I. O., & Lee, C. G. (2022). Financial development, remittances and economic growth: Empirical evidence from Nigeria. Future Business Journal, 8, Article 35. https://doi.org/10.1186/s43093-022-00139-6
Baghestany, S., & Sherafatmand, H. (2019). Government expenditure and economic growth in selected MENA countries: Bootstrap panel causality. Asian Economic and Financial Review, 9(1), 98–110. https://doi.org/10.18488/journal.aefr.2019.91.98.110
Bruno, R. L., & Shin, K. (2020). Financial structure and income inequality: Evidence from transition economies. Journal of Comparative Economics, 48(3), 532–547. https://doi.org/10.1016/j.jce.2020.02.002
Busari, M. S., Akintola, K. G., & Alani, R. A. (2022). Financial development and income inequality in sub-Saharan Africa. Economics and Sociology, 15(2), 269–282. https://doi.org/10.14254/2071-789X.2022/15-2/16
Cao, X., Liu, Q., & Wang, Q. (2022). Financial development and income inequality: Evidence from BRICS countries. Panoeconomicus, 69(5), 639–656. https://doi.org/10.2298/PAN211004015C
Chen, B. (2010). Financial development and income inequality: Evidence from China. China Economic Review, 21(4), 577–592. https://doi.org/10.1016/j.chieco.2010.05.001
Cyn-Young, P., Noy, I., & Zhang, J. (2014). Demographic change, savings, and the current account. Asian Development Bank Economics Working Paper Series, No. 401. https://doi.org/10.2139/ssrn.2514301
Dao, N. T., Nguyen, T. H., & Nguyen, T. M. (2021). Financial inclusion and income inequality: Empirical evidence from emerging markets. Journal of Asian Finance, Economics and Business, 8(1), 485–493. https://doi.org/10.13106/jafeb.2021.vol8.no1.485
Deng, Q., & Xie, Z. (2020). Financial development and income inequality in China: An empirical study based on the Kuznets curve. Economic Research-Ekonomska Istraživanja, 33(1), 1047–1065. https://doi.org/10.1080/1331677X.2019.1588749
Ding, S., Tang, M., & Yang, Y. (2020). Financial development, technology innovation, and income inequality: Evidence from China. Technology Analysis & Strategic Management, 32(1), 121–133. https://doi.org/10.1080/09537325.2019.1634255
Esbosynovna, T. A., & Sarsenbaevich, K. D. (2022). The impact of financial development on income inequality: Evidence from Kazakhstan. Academic Journal of Interdisciplinary Studies, 11(1), 110–118. https://doi.org/10.36941/ajis-2022-0010
Gu, J., & Wang, Y. (2023). Does financial development affect income inequality in China? Frontiers in Environmental Science, 11, 1139609. https://doi.org/10.3389/fenvs.2023.1139609
Gültekin, B. (2023). Financial inclusion and income inequality in emerging markets: Panel ARDL approach. Economic Change and Restructuring. https://doi.org/10.1007/s10644-023-09396-9
Guo, S., Shi, X., & Tian, Y. (2021). Does inclusive finance reduce income inequality in China? Finance Research Letters, 38, 101449. https://doi.org/10.1016/j.frl.2020.101449
He, Q., & Zhang, J. (2016). Financial development, income inequality, and poverty reduction in China. China Economic Review, 38, 65–78. https://doi.org/10.1016/j.chieco.2015.11.005
Jin, J., Sun, G., & Wen, J. (2024). Digital finance and income inequality: Evidence from China’s provincial panel data. Economic Analysis and Policy, 81, 52–63. https://doi.org/10.1016/j.eap.2023.12.009
Li, H., & Song, L. (2004). Urban-rural income disparity in China: A panel data analysis. Economics of Transition, 12(2), 289–311. https://doi.org/10.1111/j.0967-0750.2004.00185.x
Linh, N. H., Anh, N. T., & Quang, P. N. (2019). The impact of financial development on income inequality in Vietnam. Asian Economic and Financial Review, 9(4), 408–420. https://doi.org/10.18488/journal.aefr.2019.94.408.420
Liu, Y. (2022). Financial development and income inequality in China: A provincial analysis. China Economic Review, 75, 101846. https://doi.org/10.1016/j.chieco.2022.101846
Louzis, D. P., & Vouldis, A. T. (2012). Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios. Journal of Banking & Finance, 36(4), 1012–1027. https://doi.org/10.1016/j.jbankfin.2011.10.012
Lu, Y., & Dai, Y. (2005). Financial structure and income inequality in China. China Economic Quarterly, 4(4), 999–1014.
Lü, Z., Wang, H., & Zhao, Y. (2023). Digital finance and income inequality in rural China. Finance Research Letters, 56, 104532. https://doi.org/10.1016/j.frl.2023.104532
Luo, T., & Hu, S. (2023). Financial literacy, digital finance and income inequality: Evidence from China. Economic Modelling, 125, 106254. https://doi.org/10.1016/j.econmod.2023.106254
Mao, Y., & Chen, M. (2021). Does green finance reduce income inequality? Evidence from China. Resources Policy, 74, 102296. https://doi.org/10.1016/j.resourpol.2021.102296
Mesagan, E. P., Yusuf, I. O., & Alimi, O. Y. (2021). Financial development and income inequality in West Africa: A disaggregated analysis. Cogent Economics & Finance, 9(1), 1935791. https://doi.org/10.1080/23322039.2021.1935791
Nakajima, M. (2011). Business cycles in the equilibrium model of labor market search and self-insurance. Review of Economic Dynamics, 14(3), 377–402. https://doi.org/10.1016/j.red.2010.12.001
Niepmann, F., & Schmidt-Eisenlohr, T. (2022). International trade, risk and the role of banks. American Economic Journal: Macroeconomics, 14(3), 1–43. https://doi.org/10.1257/mac.20200146
Orman, C. A., & Dellal, B. (2021). Financial development and income inequality in Turkey: Evidence from asymmetric cointegration. Empirical Economics Letters, 20(2), 199–207.
Primiceri, G. E. (2005). Time varying structural vector autoregressions and monetary policy. The Review of Economic Studies, 72(3), 821–852. https://doi.org/10.1111/j.1467-937X.2005.00353.x
Qian, W., Chen, S., & Li, J. (2021). Financial inclusion, income inequality and carbon emissions: New evidence from China. Environmental Science and Pollution Research, 28, 42491–42508. https://doi.org/10.1007/s11356-021-13616-1
Shan, H., & Wang, Z. (2024). Digital financial inclusion and income inequality in China: Mechanism and threshold analysis. Technological Forecasting and Social Change, 196, 122876. https://doi.org/10.1016/j.techfore.2023.122876
Sonehekpon, S. R., & Fiamohe, R. (2023). Financial development and income inequality: Empirical evidence from ECOWAS countries. Journal of Economic and Financial Sciences, 16(1), a749. https://doi.org/10.4102/jef.v16i1.749
Song, Y., & Zhang, C. (2023). Financial inclusion and income inequality in emerging Asia. Finance Research Letters, 52, 103460. https://doi.org/10.1016/j.frl.2022.103460
Sylvanus, I. A., Chigbu, E. E., & Ifeoma, A. N. (2023). Financial inclusion, poverty alleviation and income inequality in sub-Saharan Africa. African Development Review, 35(1), 76–90. https://doi.org/10.1111/1467-8268.12641
Tulasombat, B., & Ratanakomut, S. (2015). Financial development and income inequality in Thailand. Kasetsart Journal of Social Sciences, 36(1), 92–100.
Wang, L., Zhu, J., & Zhou, M. (2023). Digital inclusive finance and regional income gap: Empirical analysis based on China’s provincial data. Frontiers in Psychology, 14, 1096458. https://doi.org/10.3389/fpsyg.2023.1096458
Wang, X., & Xiao, Y. (2023). Inclusive finance and income inequality in China: Evidence from spatial econometric analysis. Economic Research-Ekonomska Istraživanja, 36(1), 163–181. https://doi.org/10.1080/1331677X.2022.2042847
Wu, X., & Wang, S. (2019). Digital finance and income inequality: Evidence from China’s cities. China Finance Review International, 9(3), 291–311. https://doi.org/10.1108/CFRI-01-2019-0010
Wu, Y., & Huang, Y. (2016). Financial development and income inequality: A panel data analysis of Chinese provinces. China Economic Review, 40, 230–244. https://doi.org/10.1016/j.chieco.2016.07.004
Xiong, J., Zhang, H., & Wang, Y. (2011). Financial development and income distribution: A Chinese perspective. Social Sciences in China, 32(1), 117–136.
Yang, Y. (2020). Financial inclusion and income inequality in China: An empirical analysis based on provincial panel data. Finance Research Letters, 35, 101489. https://doi.org/10.1016/j.frl.2019.101489
Zhang, X., Liu, J., & Lu, Z. (2022). Fintech development and income inequality: Evidence from Chinese cities. Economic Modelling, 115, 105970. https://doi.org/10.1016/j.econmod.2022.105970
Zheng, Z., Li, W., & Huang, F. (2023). Does digital finance mitigate income inequality in rural China? China Agricultural Economic Review, 15(3), 462–481. https://doi.org/10.1108/CAER-08-2022-0175