International Speculative Capital Flows And Financial Risks Of China

With the globalization of economy and trade, Chinese economy becomes increasingly tied to the world. The high-risk, speculative and ultra-short term international speculative capital which flows largely and frequently in China during recent years has made adverse impact on both financial markets and the real economy of the country, also incurs certain financial risks. Therefore, researches concerning accelerating the establishment of risk alarming system, evaluating the level of risks and improving supervision system will definitely play important roles in healthy development of the national economy and stability of the financial system running. Based on relevant studies domestic and abroad, this article generalizes these risk types, causes, formation mechanism, influences on different industries that caused by international speculative capital. Meanwhile, we collect data with consideration of the characteristic of our economy then conduct the research from two aspects of risk alarming system and risk assessment.This article establishes the risk alarming index system which to anticipate crisis caused by international speculative capital flows in two perspectives. One is to analyse the market where the speculative capital flows into, which we call direct early warning analysis index system. The other is to analyse the eventual effects of international speculative capital on macroeconomy and the index that we measure macroeconomic environments is called indirect early warning analysis index system. Empirical analysis is applied to financial crisis in China that incurred by international speculative capital flows from 2005 to 2009, the result indicates that our macroeconomy and key markets were on the alert during this period.International speculative capital impacts mainly on the stock market, real estate market and commodity market, furthermore, indirectly influences the real economy in China. Due to these features, we introduce six variables: share price, real estate price, international speculative capital, broad money supply (M2), exchange rate and GDP. Granger causality relation test is applied to study the relationship among the variables, and then we use HP filtering method to decompose the combined index and real estate price into the tendency part and the fluctuant part, finally we find the transmission mechanism between international speculative capital and the variables. GARCH and simultaneous-equations model are constructed on condition of the analyzed data. The results show that our capital market and real economy are positively correlated with international speculative capital. While international speculative capital flows in, the capital price will rise, the real economy will grow correspondingly, and vice versa. Thus when the scale of international speculative capital flows is too large, volatility and uncertainties will increase in the domestic market. Based on the actual index data in our country, this article uses improved VaR methods to measure and empirically analyse the financial risks incurred by international speculative capital flows.Finally we conclude a rash of financial crisis broke out across Europe, Mexico, Southeast Asia and Brazil since the 90s of 20th century, in order to draw a lesson and compare the preventative measures that different regions take against the crisis caused by international speculative capital. Furthermore, we offer some proposals for reducing the market fluctuations: strengthen financial supervision, establish relevant legal system and cooperate among departments.