The Influence Of Cross-border Capital Flow On China Financial Stability

With the reform of financial market,China has been speeding up the process of its capital account convertibility over years.This action has been thought as a reflection of further development of its opening policy,and made the cross-border capital flow more complicated.At the same time,it has become more popular about the topic of financial stability since the financial crisis in 2007.People get more interested in how to improve the capability of financial system to withstand the possible risks.This paper showed interest in these two topics and studied the relationship between cross-border capital flow and financial stability.First,it showed the trend and characteristics of different kinds of capital flows in the process of Chinese capital account convertibility based on the research of earlier studies and Chinese policies.Then it analyzed Chinese financial stability according to China Financial Stability Report.And after theoretical analysis and a quantitative research of Chinese financial stability by AHP method,it studied the relationship between cross-border capital flow and financial stability from 2010Q4 to 2016Q3 by Granger causality test and impulse response analysis.Furthermore,it studied the relationship between Short-term cross-border capital flow and different factors than might impact financial stability.Here come the conclusions.First,with Chinese capital account opening over time,its cross-border capital flow has been growing up quickly.And short-term capital performed more active than other types of cross-border capital flow.Second,banking has held a core position in Chinese financial system,and the index system has showed that the operation of Chinese financial system has light fluctuation in recent years.Last,among all the types of cross-border capital flow,direct invest would help strength financial stability by developing real economy and promoting industrial upgrading.Short-term capital flow would affect financial stability through macroeconomic variables,financial institutions,financial market and real estate market.When there was net in-inflow,it would increase the money supply,encourage financial institutions behavior with high risks,and create bubbles in capital market.Then when it turned to out-flow suddenly,it could impact financial stability negatively.Now with a larger short-term outflow,China’s financial stability is also negatively affected.This paper aimed to emphasize the importance of financial stability in the process of opening by studying the relationship between cross-border capital flow and financial stability.And it has put forward some suggestions in the light of administration of capital account and supervision on financial stability in the last part.