The Impact Of Financial Openness To Net Foreign Assets

With the process of global financial integration,China’s financial industry has been expanding to the outside world.The internationalization of the RMB has accelerated,capital accounts have gradually opened up,and the “One Belt,One Road”strategic plan has landed.In the next few years,China’s financial opening will be at a critical stage.With the opening of finance,capital flows.For examples,domestic residents and enterprises will increase or decrease the holding of domestic and foreign assets,the amount of foreign inward investment and domestic foreign investment will be increased,the volatility of cross-border capital will be increased significantly,and government intervention will stabilize monetary policy on foreign exchange reserves.It can be seen that while financial openness brings huge benefits to China’s economy,it will also have an impact on the country’s external net foreign asset.Since the opening up policy,China’s current account and capital projects have“double surplus”,resulting in rising external net foreign assets.China’s foreign exchange reserves account for nearly half of the total.Most of exchange reserves are invested in low-yield US bonds which cause a low degree of risk diversification.It is of great theoretical and practical significance to adjust foreign net assets to a reasonable level through financial openness.I combed the theoretical literature,and summed up the transmission mechanism of influencing factors to net foreign assets.Based on the trend of net foreign assets,a theoretical model was established,which systematically analyzed the transmission mechanism of financial factors to net foreign assets,and found that financial opening has a negative effect on net foreign assets,and the negative effect is related to financial development.Based on the conclusion of the theoretical transmission mechanism,combined with Hansen(1999)panel threshold method,I established the empirical equations of financial openness and net foreign assets.From the empirical analysis,the relationship between financial openness and net foreign assets and other variables are discussed.Finally,combined with the above research,I proposed the policy recommendations about financial openness,financial development and others.There are some important discoveries.First,financial opening has a significant negative correlation with a country’s net foreign assets,because of global savingssurplus since the 2008 financial crisis,which led to capital outflows.Second,the opening of finance and the net foreign assets have a significant double threshold effect.When financial development is less than the first threshold,financial openness has the greatest negative impact on a country’s net foreign assets.At this time,the level of domestic investment and savings is low,financial opening can attract foreign investment to develop the domestic economy.When financial development crosses the first threshold and less than the second threshold,the negative effect is the weakest.At this time,the domestic economy has developed to a certain extent,but the financial development is not sound enough,and the dominant effect of the savings has led to the outflow of domestic savings.When financial development crosses the second threshold,the negative effect is enhanced but less than the second stage.At this time,the financial markets of various countries are developed well,and the differences are small.The preference of domestic preferences leads investors to prefer domestic assets.Third,rising population dependency ratios and increased government spending have led to an increase in total social spending,which has weakened the savings effect of the country and has a significant impact on net foreign assets.The empirical research reveals that China is currently in the second stage of financial development,the role of financial intermediation is weak,the social security system and financing mechanism are imperfect,and the savings effect of residents and enterprises is strong.Therefore,in order to adjust China’s external net assets at a reasonable level,I proposed policy recommendations to promote financial openness and financial development in China.