Research Of The Impact That International Capital Flow Brings To China’s Financial Stability Under The Background Of Financial Crisis

It becomes the throes of modern economic that financial crisis happens everydecade. The psychological shadow of the Southeast Asian financial crisis begining1997has not completely subsided while the U.S. subprime mortgage crisis broke outin2007and eventually evolved into the world financial crisis and serious economiclosses in several countries. Although different financial crisis has different reasons,the global financial liberalization and the free flow of international capital should takeresponsibility. Before the Southeast Asian financial crisis, a large number ofinternational capital influx of Southeast Asian emerging market economies, pushingup the nominal exchange rate and prices, resulting in false prosperity of the stockmarket and real estate market, ultimately concentrated attacks of premeditated hedgefunds led to the financial crisis. The financial crisis that began in2007is still affectingeconomic development; a large number of international capital withdraws local tosave their economies. It is a dangerous signal that international capital is withdrawingChina’s manufacturing industry and the real estate industry. Such frequent large-scaleinflows and outflows will give an impact on a country’s financial stability whichrelates to the country’s economic stability and social stability. Research on the impactof international capital flows on financial stability is urgently needed.Under the background of the current financial crisis, this thesis uses analyticalmethods and tools of modern economics, through theoretical analysis, case studiesand empirical analysis, to analyze the impact that international capital flows brings toChina’s financial stability qualitatively and quantitatively, and then makesrecommendations based on the results.This article first defines the concepts and theories of international capital flowsand financial stability, reviews the theories and conduction mechanisms of international capital flows to financial stability, analyzes the case of the SoutheastAsian financial crisis in1997to provide a reference for China to cope with the impactof the international capital flows.Secondly, analyzing the current situation of international capital flowsqualitatively, estimating scales of FDI and non-FDI from2008to2012, and selecting11indicators for building financial stability evaluation system from the bank, thefinancial markets and the macro-level, describing the financial stability quantitatively.Thirdly, making empirical analyses by means of co-integration relationship test,Granger causality test, VAR model, impulse response functions, variancedecomposition and finding a long-term cointegration relationship between FDI andfinancial stability index in the10%significance level, the financial stability Grangercauses FDI, Non-FDI is not only the Granger cause of the RMB exchange rate, thefluctuations in price levels and capital markets, but it has long-term cointegrationrelationship with them.Through empirical analysis, we can see the inflow of international capitalpromotes the appreciation of the renminbi, rises in the domestic price level and assetsprice fluctuations, international capital outflow poses a potential threat to ourmanufacturing and real estate. Therefore, steadily promotes capital and financialaccount liberalization, improves the RMB exchange rate formation mechanism,strengthening building the financial system and the regulatory system is imperative.