The Impact Research Of International Capital Flows On China’s Price Level

With the deepening of economic globalization, international capital flow tradein the major capital markets, with a larger scale and a growing speed. Internationalcapital flows can balance the surplus and deficiency of capital, make the capitalallocation reach its reasonable and effective point, play a major role in thedevelopment of the world economy. Recently, China gradually relaxes therestrictions on international capital flow, provides a safe and convenient investmentenvironment to attract investment, intended to promote economic development. Onthe other hand, along with the fast development of China’s economy and the strongappreciation expectation of the RMB, more and more international buyers focus onthe Chinese market. But notice that international capital flows is a double-edgedsword to one’s economy. It can boom the economy, increase the risk of economyfluctuation and the difficulty of the macro-control at the same time.Thus, fully aware of the significance of international capital flows is importantto one’s economy. It not only helps reasonably control the opening up process ofChina’s capital market, at the same time, it also provides ideas for the properresponse to the crisis brought by the international capital flows. This paper selectedthe price level as the direction of research, trying to analyze international capitalflows’ impact on the price level in China, intended to provide policy advice topromote the process of internationalization of the RMB and to establish a soundmanagement of foreign exchange and capital control regime, provide reference tomake policy for the relevant department. This paper can be divided into three sections. Firstly, based on theoreticalmodels, analyze the international capital flows’ impact on price level and how theimpact functions, from two aspects, the commodity market and capital market. Forcommodity market, international capital flows affect the equilibrium of supply anddemand of the commodity markets, so as to promote changes in the price, mainlythrough the channel and the domestic monetary base funding supporting channel.For capital markets, international capital flows affect the price of capital market, notonly through the increasing scale of money supply changing equilibrium of supplyand demand of capital, but also in the form of lowering financing costs andexpanding the scale of the real economy to support for capital market price increase.Subsequently, select the consumer price index, chain index of Shanghai CompositeIndex and the real estate consumer price index as measures of the price level,establish line regression models. The result shows that the impact of internationalcapital flows on the price level in China is not significant. Among the three indexes,the impact on the real estate market is relatively significant. In order to analyze thedynamic relationship between the variables, establish a VAR model withinternational capital flows, the consumer price index and the real estate consumerprice index, and come up to the impulse response and variance decomposition aswell. Results show that the real estate consumer price index and residentialconsumer price index will response positively after shocked by the internationalcapital flows, this response has time lag, and associated with the oscillationadjustment, ultimately, gradually disappear as time pass by. Among these markets,international capital flows has more impact on the real estate market, with a deeperdegree and more apparent result of effects.。Finally, come to conclusion and provide constructive comment, based on thetheoretical and empirical analysis.