Globalization, transparency and economic growth: The vulnerability of Chinese firms to macroeconomic shocks

In English The process of globalization encompasses economic and financial integration. The
abolition of capital controls and the dismantling of barriers of different kinds will expose
previously sheltered companies to shocks originating in the global economic arena. Policymakers
in already globalized countries have learned that market participants should be
prepared in due time to meet the new exposure to fluctuating rates of exchange, interest
and inflation. China has recently adopted a version of the International Financial Reporting
Standards (IFRS) in an effort to improve the quality of information available for risk
management and for pricing of risk. This paper analyzes the gains in transparency from the
implementation of IFRS in Europe as of January 2005 and reports no improvements in
regard to the macroeconomic impact on firms. Based on this experience, improvements for
Chinese adoption are suggested. The paper presents a framework for how to understand
and measure the impact of different scenarios on corporate performance. It also elaborates
on how to communicate themacroeconomic effects to external stakeholders of the firm in
a way that should foster further economic growth in China.