Study On Capital Account Opening And Financial Stability In China

Under the background of economic globalization and financial internationalization, we have realized the convertibility of RMB under the current account and will gradually put the opening of the capital account on the agenda. Considering the fact that there are many advantages on the opening of capital account, for example it may optimize resources allocation and perfect the market economy system, offset the deficiency of domestic capital through foreign capital inflow, make or speed up the transformation of one country's currency to be the international one, etc., we have commenced on the gradual opening process of capital account. But the process is going with many risks and some unstable factors has already emerged, such as the increase of short-term capital flow and capital fight, the increase of foreign loans scale and non-performing loans owing to the entering of foreign capital into the banking system, the instability of security market, the enhanced pressure on the reform the exchange rate system. Based on the above questions, this paper aims to point out the problem of the relationship between capital account opening and financial stability, through analyzing the existed unstable factors during the process of capital account opening. Capital account opening has some stimulative effects on the development of one country's economy and finance, while the negative impacts cannot be ignored. One country's financial stability is influenced by many factors. The opening of capital account will magnify the disadvantages of these factors, therefore the financial instability will be easily triggered. This paper will analyze the capital account opening and bank crisis in different countries, and the loosening of capital controls and the trend of capital flow, accordingly concludes that there is some negative correlation between capital account opening and financial stability. The paper will further analyze that capital account opening needs some conditions to avoid financial instability, which is to say that there must be some terms between capital account opening and financial stability to be the intermediary so that both of them can develop equally. The opening of capital account isn't going smoothly in all countries. The lessons and experiences from the unsuccessful cases will be good reference for us. The paperwill base on the practice of Japan and Mexico, etc., and conclude that we shouldarrange the order of the capital account opening correctly, should stand on the present condition of our economy and finance, and should strengthen the finance supervision and keep away financial instability. In the end, the paper gives some policy advices on how to realize capital account opening under the precondition of financial stability: first, constructing the financial stability security system, including perfecting the financial prudential supervision system, improving the financial aiding system, building up financial instability warning system, promoting the international policy coordination and supervision cooperation, controlling the disorderly flow of financial investment and short-term capital, and creating a good exterior environment for the financial stability after the opening of capital account;second, exerting the functions of government, financial market and financial institutions, promoting the financial stability while ensuring the stability of themselves;last, gradually pushing the opening from the respect of direct investment, indirect investment and exchange.