Analysis Of The Correlation Between Net Errors & Omissions And Capital Flight In China

In the 80 s of last century,the Latin American debt crisis let people reali ze first the harmfulness about nonnormal flow of international capital.In response to the financial crisis in 2008,the Federal Reserve used the policy of QE again wi th large amounts of capital pouring into emerging markets to seek high profits.After the crisis,with the Fed's withdrawal from QE,much of the capital escaped from emerging countries in various ways,and "history" is repeating itself.As the "balance ite m" of the balance of payments,the net errors and omissions item in China's balance of payments statement is "negative" every year since the full outbreak of the "subprime mortgage crisis",and presents a trend of obvious enlargement,which has attracted t he attention of academics and policymakers.It is considered that the continuous expansion of the Chinese net errors and omissions item reflects the possibility that the capital is running away secretly.Therefore,it is of great significance to study the correlation between the net errors and omissions item and the capital flight in China.First,based on reviewing the literature and China's national conditions,this paper defines “capital flight”.Then,with the comparison of the advantages,disadvantages and the applicability about the different methods of measuring the capital flight scale,this paper selects and constructs a suitable method for estimating the scale of capital flight in China,and estimates its scale for 2005Q1-2016Q4 in China.Then we choose respectively the Chinese net errors and omissions item as the dependent variable,the cross-border capital flight as the independent variable,the increase of economic openness and timing errors as the control variables.And we construct the VECM model to test empirically and analyze with quarterly data for 2005-2016 years.From the empirical results,the cause of the "negative value" about the Chinese net errors and omissions item in recent years is the change of economic openness and timing errors,rather than capital flight.The increase of economic openness is the inevitable result of China's integration into the global economy,with irreversible characteristics.Finally,in view of capital flight's scale estimation and the empirical results of this correlation,this paper proposes that the key,which to stabilize the Chinese net errors and omissions item for the sake of improving the quality of our balance of payments statistics,is to reduce timing errors,raise the accuracy of the data,and pay more attention to the influence of the increase of the economic openness,rather than blindly cracking down on international capital flows.