Characteristics of financial capital flow circulation and the risk transmission effect in China

Jiali Zhao, Linjie Jiao, Xiaoya Zhang, Rong Wu and Chenzi Guo

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: Financial capital is an important force driving China's economic modernisation. Examining the characteristics of financial capital flow circulation across sectors and risk transmission laws is crucial in guiding financial market operations and deepening financial system reforms. This study establishes a 2011–2020 China matrix that includes capital fund flow statements for non-financial corporations, financial institutions, the general government, households, and foreign sources and examines changes in capital flow circulation by developing a financial flow multiplier system model to measure the direct and indirect transmission effects of capital flows between sectors from the perspective of liabilities. Results show that China's overall scale of financial capital flows has increased, but fluctuations have emerged in the last decade. The sectors' financing structure has changed significantly, with financial institutions remaining the primary capital inflow and outflow sectors of the financial market; however, the proportion of liability and investment in the household sector has increased, resulting in increased risk transmission. Moreover, the sectoral fund surpluses and shortages are highly volatile and uncertain, with non-financial enterprises serving as the primary drivers of real-economy investment. The capital flow from financial services to the real economy shows a fluctuating growth trend, primarily flowing to non-financial corporations; however, the proportion exhibits a downwards trend. Finally, we find that the flow transmission relationship between different sectors and financial transactions in the financial market is complex, with both direct and indirect risk transmission effects between sectors. Changes of financial institutions' liabilities significantly affect the liabilities and investments of other sectors.

Keywords: Flow of funds statement; Capital flow cycle; Multiplier model; Transmission effect (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521924006069
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006069

DOI: 10.1016/j.irfa.2024.103674

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().