A Study Of The Capital Flows And Economic Growth In China

As China has been integrated along with the financial globalization,in addition to external risks like international Geo-political intensity getting stronger,the rising of isolation and trade-protectionism,unexpected global financial environment tightening and larger economic growth downward pressure,internal risks like the slowdown of Chinese economic output,have continuously shaken China,an economy which has not fully liberalized its capital market.At the end of 2016,China established the "Shenzhen-HK Stock Connect",with the deeper connection of capital flow,the Chinese domestic economy is faced with bottle-neck scenario desperately needing structural growth engine converting,meanwhile it's getting more and more important that prudentially taking care of capital flows in China.One could see many cases,succeeded or failed,in capital market development in the past.How could China deal with the capital control under such a new circumstance of international financial atmosphere?This paper studies the China's capital account in the past years during 2005 3rd quarter to 20163rd quarter after the exchange rate reform by analyzing different type of capital flow respectively(FDI,security investment,other investment),using ECM and VARM to study the short-run relations between net capital flows and economic growth quarterly.The empirical study suggests that direct investment and other investment have positive effect on economic growth,while portfolio investment is somehow harmful to output,which influences the most.Combining empirical analysis and historical study,it is promoted that China should conquer the obstacles ahead and reconstruct its growth pattern to avoid sharp declines,and coordinate the structural economic growing pattern.Not only should China abandon the idea of "big bang" capital account liberalization,but also make sure lifting gradually and prudentially.Above all,despite attracting more foreign investment inflows,China has to make its way out by structural reform and encouraging oversea investment,building a prudential managing system in case of unexpected financial crisis or even economy recession.