Study On The Risk Warning In The Opening Process Of Capital Account In China

Since China officially became a member of the World Trade Organization (WTO), the globalization of China's finance and economics has been accelerated. In recent years, in order for economic development and implementations of the "open-door" policy, RMB capital account has been more and more liberalized, its convertibility has been significantly improved. However, globalization not only promotes global economic prosperity, but also exacerbates global financial turmoil at the same time. Since 1990s, frequent outbreaks of financial crisis, reflect the negative impact by international capital flows on global economy and finance. Establishing a risk warning system in the progress of opening capital account is an important topic to China, in order for its economic development, macroeconomic control and finance stability.This paper systematically interprets the capital account crisis theory and traditional and innovative financial crisis risk-warning models as well. This paper also introduces the current situation of China opening capital account and analyzes the achievement and problems resulted from the prevailing supervision on cross-border capital flows under capital accounts. In summarizing the pros and cons of pervious research results, this paper points out to establish a finance crisis risk warning system for opening capital accounts, by means of optimizing the selection method for supervision factors, enhancing the applicability of metrology. The establishment of this system should consider China's economic development progresses and current situation of supervision and control, and should be in line with China's national conditions.This paper develops the previous synthetic methods of money market pressure index, and with referring to the methods, constructs banking crisis pressure index and asset bubble crisis pressure index to describe financial risks of China. Basing on a comparative analysis of previous method for selecting early warning index, and in view of no crisis so far in China, the paper adopts Granger causality test method to select early warning index.The paper adopts non-linear MSVAR model to establish financial risk warning models for three sub-sections:currency crisis, debt crisis and asset bubble crisis, and then study the financial risks in the process of opening China's capital account. Basing on the research on the three sub-sections, the paper employs factor analysis and SWARCH models to make a comprehensive study on the overall financial risks in the opening of capital account, and early warns future financial risks.The paper's empirical results show that the main causes for possible currency crisis are:multi-objectives of currency policy, price distortions of financial assets, abnormal changes of FDI outflow, high growth and Substantial fluctuations of foreign debt balance. The potential causes for banking crisis of China are:comprehensive monetization of economy, sustained and rapid rise of house prices, centralization of bank funds in real estate industry, great quantities of short-term foreign debt in-and-out of China. Asset bubble risks are mainly from:FDI's concentrated outflow, wide fluctuations of Chinese financial institutes' debt balance, sharp up and down of stock market. China's overall financial risks are mainly impacted by currency crisis and banking crisis, the area with superimposed signals from risk warning models of currency crisis and banking crisis risk, will pull the trigger of overall financial risk warning.Last by not the least, this paper makes a forecast on the overall financial risks of China for the 1st half year 2010. The results show that there is unlikely a large-scale financial crisis for the period.