Does financial deepening promote risk sharing in China?

This paper addresses the issue of whether financial deepening has promoted interregional risk sharing in China. It first examines the evolution pattern of overall risk sharing across China as a whole and in its coastal, central and western areas in different periods. The level of risk sharing exhibits a declining pattern over time, most of which is attributable to the coastal areas. This is in striking contrast to the rapid development of financial markets and financial intermediaries over the decades. By analyzing whether the development of the credit and capital markets affects consumption risk sharing, we conclude that financial development has not promoted risk sharing for the nation as a whole. While the expansion of the capital market has promoted risk sharing in the coastal areas in spite of the overall declining trend in that region, there is no evidence to show that this is true for the western areas.