The Correlation Between International Capital Flows And The Real Estate Prices

Since joining the WTO, China's economy has been increasingly integrating with world economy. In the background of a weak dollar, declining U.S. real interest rates, and depression in the major developed countries, a large number of international capital rush into China. China has been sitting on the throne of the most attracting developing country to foreign capital for 15 years. After 2008's subprime crisis, the size of the global capital flows got increased, the rate accelerated and the flow direction more uncertain. As the second largest target of foreign investment, just inferior to manufacturing industry, the rate of foreign capital's participation is going higher and higher. The real estate price has become the most concerned hot issue of Chinese people. Whether or not there exists a correlation between International capital flows and the continuing rising house prices, is the main problem this paper attempts to answer.On the basis of the Money Supply Theory and Terms of Trade Theory, we analyze the mechanism of action between the real estate prices and the International capital flows, which is a theoretical guidance for the later empirical analysis. In order to giving a more comprehensive display of foreign capital's participation in the real estate industry of Guangdong Province, we compiled a large number of data and did a detailed analysis, including the total amount, history, destination and sources of the foreign capitals. In the part of empirical analysis, using classification method, this paper sorts the international capital flows into two parts:the long-term capital flows and the short-term capital flows, and further estimates the scale of international short-term capital flows of Guangdong Province. Through the integrated use of Co-integration Test and Vector Autoregressive Models, the paper goes deep into the correlation between international capital flows and the real estate prices, and then offers some policy recommendations about maintaining house price stable and strengthening the regulatory.