Study On The Linkage Between China's Monetary Market And Capital Market

Although China's financial markets are managed respectively, to attract funds of monetary market to flow into capital market has been one of the focuses theoretically and practically. China's economy has jumped out of deflation and run soundly since Jun. 2001, yet security market has suffered the biggest adjustment and has still been gloomy. The indirect financing has been taking the leading role in our country and the view of "capital market first, monetary market second" existed since the beginning of development of capital market. So the appeal to attract funds of monetary market to develop capital market has been the mainstream view. We must begin to consider the problems of market development and management from the angle of coordination between two markets after the past financial system reform. Because of the differences of commencement and reform emphasis as well as policies, the extent of upgrowth of the two markets is so different and there is no effective connection between them. The characteristics of oneness and linkage in financial markets require kind of connection between submarkets. It is so hard for us to discuss the maturation of one market disregard of the connection. So the problem of lagged development of the monetary market in nature lies in its noneffective connection with capital market, which is the key point of this dissertation. Relationship between capital market and monetary market is much complicated. So this dissertation chooses the scalable and structural angles. The scalable angle includes: the scale of stock, namely sum of monetary value of various financial tools in a certain time; scale of flow, means scale of exchange, namely monetary value of total exchange in certain time. Since the former is the base of the latter and the former is relatively steady, this dissertation takes more attention on it and tries to find rules of market evolution as well as breakthrough thought international comparison. There is close connection between capital market and monetary market which is reflected by many factors including the financial agents, tool, institution and funds flow under them. This dissertation argues as follows: the combination of financial agents and tools for the two markets decides micro-foundation of connection and dynamic mechanism of funds flow statically, on which we set up a theoretical model for financial market. The changes of government supervision system, financial system development and financial innovation can lead to structural changes the financial agents and tools, and influence the connection between two markets dynamically. So the survey on the above factors forms the theoretical frame of this dissertation. On the basis of collecting, trimming and analysing lots of data, this dissertation has two characteristics as follows: Firstly it applies the method to disassemble stock and flow of financial market on the standard of the financial departments assets created by Goldsmith to the analysis of capital market and monetary market, then it proves the rules that the ratio of the scale of capital market to the scale of monetary market keeps falling in developed countries while it goes up to a top and then falls with financial deepening in developing countries. This dissertation raises a different view that the lagged development does not lie in monetary market but in capital market after analysing the changes of the ratio in China and comparing it with other countries. Secondly, this dissertation gives dynamic analysis on present connection between capital market and monetary market in our courtry. Selected variables of monetary market are lending market rate, Repo rate, money supply, reflow of currency, loan balance, short-term loans, whereas in capital market are SSE Comp.Index, SZSE Comp.sub-Index, inter-bank bonds market Comp.Index. Through correlation analysis, cointegration test, Granger Causality test on the connection of funds and prices of two markets, this dissertation reveals: the extent of connection of the inter-bank market and Repo market to the stock market is very low, yet that of financial institutes offering to the stock market is comparatively high, which proves that "grey" channel is even higher than the legal channel; monetary policy affects security market a little and the yield of bond market to the one of stock market is not relative. There is a severe gap both in the interest rate structure of the two bond markets and the two submarkets of capital market.