Keeping in view the growing influence of China on its trading partners, this study intended to examine the influence of monetary policy shocks of China on selected South Asian economies using time series monthly data over the period 1998m1-2010m6. For this purpose we have used two external and four domestic endogenous variables. Short term interest rate, exchange rate per US dollar, industrial production index and consumer price index are the domestic endogenous variables .Our external endogenous variables are M2 as China’s money supply and average crude price of oil. For structural VAR analysis, we have estimated the VAR system in level. The structural VAR model has been estimated by imposing non recursive contemporaneous restrictions on structural form, our model have three over identifying restrictions for a given structural factorization specified in equation. In next step, we have estimated impulse response dynamics within structural VAR analysis; first, we examine how domestic monetary policy shock respond to price level and output by following contractionary monetary policy and then response of domestic output and price level for Chinese monetary policy. Moreover, we have used variance decomposition test to determine the variations in output and price level due to expansionary monetary policy shocks of China. We found that, as a result of monetary policy expansion in China price level and output increased in some countries in our sample, especially in Pakistan and Sri Lanka .Our results are consistent with theory that monetary expansion of large open economy has a significant influence on macroeconomic variables of its trading partners. But the importance of Chinese monetary policy shocks may still be small. Our result emphasized that China has growing influence for its trading partners in South Asia. Supervisor :- Dr. Hasan . M Mohsin