Causes For International Financial Crisis And Lessons China Can Learn From

International financial crisis is applied broadly to a variety of situations in which some financial institutions or assets in one country suddenly lose a large part of their value, currency devalue, and resulting in the economic and financial situations of other countries or regions related getting worse. Many financial crises were associated with banking panics, stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.The paper points that the credit crisis of the financial derivatives is the immediate cause of 2008 financial crisis. Before the crisis broke, the businesses between institutions such as banks, security firms and insurance firms, and investors are built on the basis of the expected return instead of real assets. If the expected return is achieved, there is no risk. If the expected return does not exist or can not be achieved, the credit assets are purely bubbles.The financial derivatives in USA have two characteristics: increasing banks as credit risks carriers, and more and more obvious intention of the derivatives publisher for short-term return. These two characteristics to much extent lead to the subprime loan crisis. Credit derivatives played a role as magnifiers which not only prick up the housing mortgage credit crisis in USA, but also push the risks of debt market into stock market and even merchandise market, and finally extend the credit crisis of USA to the other countries worldwide.Virtual economy deviation from real economy in USA is the deep reason of the financial crisis. In USA, the real economy was getting worse while the virtual economy was growing faster and faster, which result in a serious deviation between real economy and virtual economy. When this deviation cannot be adjusted by the market, it must create bubble and lead to crisis. In USA, debts, futures, stocks, foreign exchanges, real estates and a large number of financial derivatives have become important tools to create wealth for American people. The economic statistics also show a serious deviation of real economy and virtual economy of the country. On the other hand, USA created a new international circulation with adverse balance of trade and favorable balance of finance. When the overseas investors lose their confidence for US dollar, they will cease their investments for American assets and so the circulation of US dollar also is ceased, which will finally destroy the bubbles caused by virtual economy and lead to an economy crisis.The unbalance of the global economy is the root cause of the international financial crisis, which should be studied from the current International Monetary system. Under the current International Monetary system, US dollar does not play the role to exchange of gold and does not need to stabilize its value as before. While US dollar still play an important role in the current monetary system since US dollar is still the international reserve currency for the other countries. The favorable balance of trade brought more and more US dollars for the other countries, which force USA to publish more and more financial products to recycle US dollars back to its domestic market, which result in favorable balance of finance in USA. Recycling as this, the unbalance of the global economy is more and more serious and finally cause international financial crisis.Generally speaking, the development of American financial derivatives market open the gate of global financial innovation, and bring along the financial securitization and high leverage in the global market, and finally lead to the international financial crisis which was lighted by US subprime loan. Although the causes of the financial crisis are various with more than one factors including regulatory failures, the root cause is the US dollar issue system causing increasing of the currency supply and finally result in the serious unbalance of the global trade and expanding of international financial risks.The negative influence of the international financial crisis lies more on the real economy than that on the virtual economy in China. The export enterprises of mid-small size are the first victims. The statistics of total export amount shows this statement. The unbalance of economy growth mode of China is the main reason of the negative influence caused by financial crisis. Chinese economy all along depends on exports and investments, while the domestic demand is unable to play an import role to bring up the economic development in China, which result in unbalance of the economic structure with insufficient domestic demand and over investment as its two characteristics.Therefore, China shall adjust its economy growth mode as development strategy, by means of all kinds of innovation measurers, to eliminate the abstracts that restrict consumption, increase domestic demand and bring up consumption and decrease the dependency on the export trade and finally make economy structure balanced. Only in this way, Chinese economy can grow healthily and fast and be more competitive and efficient and strong in the world.Meanwhile, China should deal with appropriately the relations between financial innovation and strict discipline, making financial innovation full of energy and also meet the basic requirement of financial management and risk control. China shall insist the philosophy of financial innovation and its strategy, but not to deny the financial innovation just because of financial crisis. The more important thing for China is to strengthen and improve its financial regulatory, making sure regulatory keep up with innovation.China should deal with appropriately the relations between the real economy and the virtual economy. Currently the most important thing for China is to devote major effort to develop capital market, making the development of financial market match the development of real economy. Meanwhile, the growth of virtual economy cannot derive from the real economy.China should strive to seek advantages and avoid disadvantages in the worldwide economy globalization. The financial security is a basic problem which will influence the healthy development of Chinese economy and the social stability. China must attach enough weight to the financial security. During the opening of economy and everyday operation of the domestic economy, China should guard against financial risks, to build a high-efficient and anti-risk economy system. China should better deal with the problem and challenge during the economic globalization, especially the challenges on financial system. China should take active in the establishment for more rational International Monetary System. Currently many countries are appearing for the innovation on the International Monetary System, striving to establish a more rational International Monetary System. During the establishment of a new monetary system, China, as a emerging market, should have more voice and play an active role. At the same time, China should expand the influence of RMB in the worldwide economy including Great China (Hong Kong, Macao, Taiwan), Asia region and Asia Pacific regions. 2008 international financial crisis gives RMB a good opportunity to be attached much importance by the international social community. The single monetary system with US dollar as supremacy will probably be changed and the US dollar now are facing more and more challenge. China should study and watch closely the new problems and challenges of the International Monetary System.