The Research On The Arbitrage Pattern Of China’s Cross-border Capital

After China joining the WTO in2001, with the degree of participation in theeconomic globalization gradual deepening, the cross-border capital flows havegradually increased. Since2005, the reform of RMB exchange rate and theestablishment of the offshore market, the RMB opened the process ofinternationalization, but also into a stable currency appreciation path. After thefinancial crisis, China in the "4trillion" stimulus, became the leading world economicgrowth leader. But the west sluggish growth in the major economies, and to save acritical situation, takes extremely loose monetary policy, the release of the enormousliquidity. Exchange rate and interest rate difference inside and outside of theMainland China leads to the large number of cross-border capital arbitrage. Arbitragechases capital appreciation of the RMB and cross-border spreads, which go againstthe real economy, imposing many unstable factors to China’s economic development.With literature research, qualitative analysis and other research methods, thestudy takes the arbitrage pattern of China’s cross-border capital as the research subjectto describe the situation of the arbitrage of cross-border capital, analyze the basicmodel of the arbitrage and the channel where cross-border capital flows, and proposeregulatory policies on the basis of the discussion above.Firstly, based on the theory of interest rate parity and the theory of Internationalportfolio this study analysis the motivation and describes the specific reasons,characteristics and sources of the arbitrage of cross-border capital. Secondly, from theperspective of the arbitrageurs profiting under the motivation of taking the differencesof exchange rate and interest rate, this study summarizes the basic pattern of thearbitrage of cross-border capital, i.e. exchange rate differences pattern and interestrate differences pattern, and combined with the actual situation analysis the twopatterns in detail. Again, from the perspective of the current account this studydiscusses cross-border capital flow channels, as described for the two channels ofcapital flows and financing facility contracts flows. Finally, based on the results ofthese discussions, this study presents the regulatory proposals for the arbitrage ofcross-border capital management from channel management and motivationmanagement separately.