Study On The Changing Balance Of Deposit And Loan And The Conduction Mechanism Of Foreign Exchange Reserve In China

Since the reform and opening, China national balance of loan and deposit and foreign exchange reserve show the trend of same direction. The widening of deposit surplus shows the unbalance of domestic market, while the sharp increase of foreign reserve shows the unbalance of international balance of payment. So this essay focuses on the relation between the domestic and international unbalance, especially the mutual conduction mechanism.This essay constructs many theoretical models between foreign reserve and balance of loan and deposit and analyzes with econometric tools. The empirical analysis shows that the existence of conduction mechanism between them.This essay use multi-variable regression to analyze the conduction mechanism from balance of loan and deposit to foreign reserve. The result shows they are positively correlated while foreign reserve is negatively correlated with the balance of bonds, positively correlated with FDI, and positively correlated international arbitrary capital. The correlation between foreign reserve and balance of deposit and loan shows that in recent years the weak domestic need makes domestic enterprises export more products, which increase sharply the foreign reserve. The correlation with FDI shows that the mechanism from balance of loan and deposit to foreign reserve has been blocked. This represents the capital flow mystery of Stigliz in China. Then this essay analyzes the mechanism from foreign reserve to balance of loan and deposit. The result shows that balance of loan and deposit positively correlates with foreign exchange and deposit reserve while negatively correlates with currency deposit. The result shows that the sharp increase of foreign reserve and the institution of compulsory foreign exchange administration are another important reason for the widening of balance of loan and deposit.At the end of this essay, this essay gives some advice of stimulate domestic need , financial reform, selected FDI introduction and better utilization of foreign reserve for the constant and sustainable development of China.