The Post-crisis Era Hot Money Flow Regulation Research In China

This paper introduced a new method of estimating the scale of "hot money", explained the formation mechanism and determined the constituent components of the RMB counterpart of foreign reserves, and also covered the impact of firms’autonomy in holding foreign currency reserves on the estimating the scale of "hot money". This paper built the VAR model of hot money and China’s stock market, and concluded that:China’s stock market overreacted to the inflow of hot money, which would be reversed later. If yield rate of stock market rocketed, then it’s anticipated that stock market would decline, so hot money usually flows out of stock market before its decline. Also, this paper built the VAR model of hot money and China’s real economy, and concluded that:hot money would flow out before the decline of real estate market. Upon the analysis on the funds flow in cross-border payments and exchange settlement and sales, this paper concluded the capital inflow and outflow pressure in various stages after the2008financial crisis, and proposed corresponding regulatory measures. This paper analyzed exchange settlement and sales and the impact of RMB international settlement on international capital flow, and accordingly excluded its impact on the calculation of hot money scale. This paper conducted empirical analysis on exchange settlement ratio of current account, upon OLS regression, this paper concluded that hot money under current account mainly flowed to stock market prior to the2008financial crisis, while it mainly flowed to real economy after the crisis. Then this paper conducted empirical analysis on exchange settlement ration of capital account, upon OLS regression, this paper concluded that high yield in A Share market contributed to inflow of hot money into domestic stock market through FDI channel. Upon comparison of exchange settlement ratio between current and capital account, this paper concluded that hot money under capital account is more short-term and speculative. Upon Granger causality test, the liquidity of foreign capital into stock market is found to be more liquid than capital into real estate market and real economy sector, therefore, firstly, high yield in stock market would directly attract foreign capital, then continuous flow of foreign capital into real estate market and real economy sectors would lead to prosperity and even bubble, this illustrated the process of foreign capital inflow. This paper assessed the supervision intensity of every year since2007and found that in2008capital control was enhanced, and capital control had been loosening ever since. The opening up of capital account would take4stages: foreign debt, FDI, direct foreign investment and capital inflow into domestic security market. Exchange administration agencies has been improving its supervision on hot money, they increase the cost for foreign capital inflow, cracked down on illegal capital inflow and strengthened its control on foreign debt.