Study On Errors & Omissions And Capital Flow In China Over 1990-2009

The errors & omissions in the balance of payment (BOP) statement is set according to the double entry, its original aim is to make the BOP statement satisfy the accounting rules. The analysis on the errors & omissions not only can reflect the statistics of BOP but reflect the capital flow in capital & financial account.As the reform and open policy goes further, nowadays China has surpassed Japan and become the second largest economy behind United States. As its economy soars, China still suffer much from the incomplete financial markets, flawed BOP statistical system and problems on the formation of exchange rate, which make China vulnerable to face the shock caused by external capital, and this then restrict the further development again.Meanwhile, due to the confidence aroused by the promising economic development trend and the expectation of appreciation of RMB, short-term hot money floods in which can be sensed by the surging amount in errors & omissions of BOP. Hot money inflow and capital outflow co-exists and they're worthy of our attention.To implement strict regulation on the cross-border capital and make good use of it without affecting China's economy is the current difficult issue to solve. This paper studies the factors that affect errors & omissions with the analysis over the 1990-2009 BOP statements and discusses the relationship to capital flow to provide suggestions for the problems.Chapter 1 states the significance and study background of the subject. Errors & omissions in China's BOP statements include dual problems:capital outflow and hot money inflow. By analyzing the items in errors & omissions the result is meaningful for the solution. Moreover, this chapter makes introduction of the relevant literature on errors & omissions as well as capital flow, and last the methodology is illustrated. Chapter 2 gives analysis on the errors & omissions over the period 1990-2009 by using diagrams and tables, comparisons to "Brick" member Brazil are also made.Chapter 3 studies on the reasons of the occurrence of errors & omissions, stating that there're various factors for that, one is from statistics and the other is caused by capital outflow and hot money inflow. Chapter 4 also analyzes the impact on China's errors & omissions by checking current account, capital & financial account, capital flow like money laundry.Finally, in chapter 5, this paper gives some suggestions on the regulation of cross-border capital flow. First, greater attention on errors & omissions is requisite, besides, the improvement of statistical approach and system is also required. Under current circumstance, deregulation of capital & financial account should be prudent, the prohibition to illegal private bank is necessary.This paper excludes such developed countries when comparing data because the deregulation level is high enough, capital flow is free and it's incomparable for China. As a result, comparisons are made with Brazil having similar level of open, Brazil's experience on errors & omissions can be a reference. The shortness of this paper is that Brazil has relative lower status in globe which is incomparable. Owing to the availability of data, no comparisons are made with India and Russia who are also the member of "Brick".