How Does the Global Financial Cycle Affect the Systemic Risk of Non-Financial Firms? Evidence from China

This study investigates the causal relationship between the global financial cycle and systemic risk in non-financial firms (NFFs). We find that during the boom phase of the global financial cycle (GFCY), systemic risk in NFFs declines but surges during the recession phase of the global financial cycle. The analysis of the decomposed risk subcomponents further reveals that this counter-cyclical pattern originates from the intensification of the two key processes of systemic risk formation, namely “individual risk accumulation” and “systemic tail interconnectedness” during the recession phase of the global financial cycle. Further analysis shows that the bank credit supply channel and the currency mismatch channel are the two main pathways through which the global financial cycle amplifies corporate systemic risk. Against the backdrop of global financial cycle fluctuations, China’s prudently advanced two-way capital account openness plays an indispensable role in maintaining the stability of the real economy.