The Correlationship Between Onshore And Offshore Markets-

The emergence of Hong Kong offshore market will inevitably lead to the existence of two interest rates and exchange rates in Hong Kong and mainland China.According to relevant theories and researches,capital will flow from one district to another if gaps exist between interest and exchange rates.In order to make it clear that whether this would happen between Hong Kong and mainland China,I have collected the RMB spot exchange rate,interbank offered rate and capital flow from January2nd,2012to June30th,2013, analyzing their relationships with econometric models,based on interest parity theory,M-F model and portfolio theory.Analyzing with Eviews,the results show that both spread of interest rate and exchange rate are Granger cause of capital flow.In addition, VAR model is used to analyze the effect of the spread of interest rate and exchange rate on capital flow when the spread exist simultaneously,and the outcome is that:spread of exchange rate influences capital flow unstably in the early period while it turns to be a steady positive cause to capital flow; spread of interest rate has a more stable positive influence on capital flow all along. After variance decomposition,the result proves that the maximum contribution rate of spread of interest rate on the change of capital flow reaches40%,while that of the spread exchange rate is24%.Based on the statistics,I make some suggestions that China must speed its process of marketization and the connection of exchange rate system with global to avoid the financial shock of large-scale capital flows.