The macroeconomic impact of Chinese economic uncertainty in East Asia: evidence from a large multi-economy TVP-VAR model

Abstract

This paper examines the spillover effects of Chinese economic uncertainty on Japan, South Korea, and Taiwan, set against the backdrop of China’s structural transition and rising geopolitical tensions. Using a large multi-economy time-varying parameter vector autoregressive model estimated with quarterly data from 2000 to 2024, we document that transmission dynamics are highly state-dependent, amplifying during global turbulence, notably the Global Financial Crisis and the COVID-19 pandemic. However, while uncertainty itself transmits rapidly across the region, the resulting macroeconomic outcomes diverge from conventional theoretical predictions. Specifically, although Chinese uncertainty shocks can depress East Asian exports to China, they induce sustained real GDP gains in Japan and negligible output responses in South Korea and Taiwan. Moreover, East Asian inflation and interest rates remain largely insulated from China’s uncertainty shocks. These findings align with the downstream uncertainty mechanism proposed by Grigoris and Segal (2025). We attribute this regional resilience to effective trade diversification, potential safe-haven effects, prudent domestic stabilization policies, and, crucially, the downstream expansionary effect.