Financial spillover 

is an effect known for their negatives aspects. It refers to a domestic issue

in one country that can affect another. Even more, with globalization, countries' economies
are linked. Agenor and da Silva (2018) explains that there are desirables effects, such as
resulting, for instance, from the incorporation of news into forward-looking asset prices, and
not the desirable effect (such as the transmission of excess volatility due to financial frictions,
especially financial accelerator effects)
There are some channels where these effects are transmitted, usually conventional channels
such as asset prices and portfolio effects, cross-border balance sheet exposures, trade linkages,
information or confidence effects and policies (Agenor & Silva, 2016)

The spillover effect started in China in 1978 when the development philosophy was based on
self-reliance, industrialization and egalitarian regional policy. Moreover, Mao's China used
elements to spill over the coasts to the countryside of China based on the economic principle
of comparative advantage. Ying (1999)
Mwaze et al. (2016) explain that financial spillover would be small in China due to a closed
capital account regime. However, because of concerns about the speed at which China's
economy is slowing, the questions about spillover become stronger. Mainly three channels
topics of trade, financial, risk, and commodity-exporting.
Krugman, mainly author of the new geography economics era, believes that spatial
localization can result in better innovation and economic growth opportunities. As well in a
globalization environment, this can spread the borders furthermore. That means better
opportunities in China could spread to other emerging economies such as Korea.
This spread concept has been discussed since Myrdal, he believes that regional inequalities
can be formed by liberal growth. That means that there exists a location competition between
different places. Another notary author is Hirschmann, as Ying (1999) says:
"According to Hirschman, the momentum of growth in the "regional centres of economic
strength" is fueled by the ability of entrepreneurs to take advantage of agglomeration
economies and the dynamic growth atmosphere that develops within the poles. Once growth
takes a firm hold in one part of the national territory, it will set forces that act on the
remaining parts in motion."
Also, Ying (1999) explains that agglomeration forces:
"(...) localization externalities (labour market pooling, technological spillovers, and
intermediate goods supply and demand linkages), which tend to lead to the local clustering of
economic activity, but pecuniary externalities (market-size effects on a broader regional level)
are more important in leading to a large-scale core-periphery pattern of economic
development within nations."

Xia et al. (2016) understand that China has a different approach to understanding spillover
results. Because of the non-openness economy, variables such as infrastructure, labour skills
and technology are different. Therefore, variables such as political, law regulations and
cultural approaches are essential to understand the overview.

Duveen and Peters (1998) explain growth spillover as follows:

"Fiscal or monetary policy in one country will, generally, have a non-negligible effect on the
economies of neighbour-countries. These external effects called spillovers can be large,
particularly when linkages between countries are strong."
Spillover is an external effect that could mainly affect the countries with the most significant
relationships. It is essential to remind that in contrast to the significant rise in exports destined
for China, the share of most countries' exports to the United States has remained stable or
declined a little over the past 15 years. (Agenor and da Silva, 2018) In the case of China, it is
already a fact the Chinese economy directly affects countries such as Korea and Taiwan,
considering them as emerging countries, as Blagrave and Vesperoni (2016) show. The
question is about Japan, a vast china's trade partner but also a developing country.
Agenor and da Silva (2018) explain that the suspension of trading after the Chinese stock
market drop on 06.01.16 affected major asset markets worldwide. Thus, international
spillovers have become a two-way street – potentially creating financial instability in both
directions.

Duveen and Peters (1998) also complement that GDP spillover is the change in foreign GDP
that has been split over from the domestic country due to some exogenous domestic shock.
That means that the hypothesis would be that the change in Chinese GDP split to Japanese
GDP, so Chinese fiscal or/and monetary policy affects Japanese economics.