Research On China's Guard Against Financial Crisis

Ever since the Great Depression During 1929-1933, the world economy has been in a relatively stable state for half a century. But after 1990's, financial crises broke out one after another, the financial crises frequency increases obviously. According to Krugman's research, the financial crisis is about to take place every two years. These crises usually were touched off by the attack of international hot money and broke out first as currency crisis, having the inside sources, latency, rapid and extensive chain reaction and contagiousness as their features. Their breaking out imposes great damage on a country and even the whole world economy. Although our country avoided the contagion of the Asia crisis by relatively strict capital regulation, our country has become a member of WTO, and the gradual release of the regulation on capital and financial account is an inevitable trend.Our country's economy will increasingly and extensively melt into the progress of the integration of the world economy. These make our country's economy face not only more opportunities, but more attacks and ordeals. Therefore, there are in-depth and realistic meanings to study the breaking out and contagious mechanism of financial crises. This kind of study is particularly urgent against the background that there are a lot of bad loans in the banking system and that the whole financial system is rather vulnerable. In view of this, taking the analytic method with reference to the achievements of the research on the breaking out and contagious mechanism of financial crises, this paper studies our county's financial system, the capital flow, the foreign exchange and foreign debt regime and the investment efficiency etc. and then points out the factors that will induce our country's financial crisis. Then this paper tries to put forward policies against the financial crisis.The main body of this essay consists of three parts:Part 1 gives a full description of the breaking out and contagious mechanism of financial crises. As for bank crises, Marx, Marshell and Keynes ect. explained the breaking out mechanism of the crisis mainly from the angle economic cycle. Minsky, Diamond, Friedman, Stiglitz and Reinhart etc. analyzed the causes of the bank crisis respectively from the behavior of the microscopic body, the intrinsic flaws of theand financial liberation etc. As for currency crises, western scholars have put forward three generation crisis models. These three generation models research the formation mechanism of currency crisis respectively from the angle of the deterioration of a country's economic fundamentals, the intrinsic fault of the fixed exchange rates, the instability of expectations and the financial operation system. The researches of Miskin and Kaminsky ect. show that usually the bank crises and the currency crises coexist and they interact as both causes and results and intensify reciprocally. As to the crises contagion, Gerlactu Miller and IMF respectively studied the trade contagion, the financial contagion and the expectation contagion.Part 2 elaborates on hidden dangers that probably set off the financial crisis in our country. This, first of all, displays on the relatively vulnerable banking system. There are a lot of bad loans in our country's bank department and the required capital rate and the profit level are too low. There are bubbles and over speculation problems in the stock market. Moreover, the structure of the financial system is unduly unitary, and so on. All these factors make the financial system rather vulnerable. Secondly, the exchange rate is too rigid. This greatly affects the independence of our country's monetary policy and its effective implementation. It frequently conceals serious currency crises. Thirdly, there are problems in our country's foreign debt administration. Although the foreign debt indexes yet are within the safe range at the moment, in the past few years the foreign debt especially short-term the foreign debt increased too fast. The composition of foreign debt isn't very reasonabl...