Study on Influencing Factors of Cross-border Capital Flows in China’s Financial Markets

Baoan Xiong () and Xiaodan Zhao ()
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Baoan Xiong: Baise University
Xiaodan Zhao: Baise University

A chapter in Proceedings of the 2024 International Conference on Digital Economy and Marxist Economics (ICDEME 2024), 2024, pp 188-202 from Springer

Abstract: Abstract This study employs the Vector Autoregressive Model (VAR) to investigate the impact of different variables on cross-border capital flows in China’s financial markets, taking the balance of foreign exchange settlement and sales in capital, financial items, direct investment, and securities investment as the perspective. The variables include RMB exchange rate, interest rate differential between China and the United States, and the variable rate of the stock market index. The findings demonstrate that the impact of different variables is various under different perspectives. The impact of changes in the RMB exchange rate varies widely. The expansion of the Sino-US interest rate differential will result in cross-border capital inflows across all categories. Additionally, the fluctuations in the stock market index exhibit an inverse correlation with cross-border capital flows under the capital and financial items and direct investment, while exhibiting a positive correlation with cross-border capital flows under the securities investment item. In this regard, we put forward policy recommendations as follows: Firstly, guide exchange rate expectations and strengthen foreign exchange market supervision, to keep the RMB exchange rate basically stable at an appropriate and balanced level. Secondly, it is recommended that the interest rate differential between China and the US should be kept at a reasonable level by focusing on the current new development pattern, in light of the worldwide economic and financial situation. Thirdly, it is essential to reinforce the sharing of information and collaboration in supervision among the relevant supervisory departments. This will facilitate the supervision of cross-border capital flows at a reasonable and legal level.

Keywords: Financial market; Cross-border capital flows; VAR model (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-636-9_18

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DOI: 10.2991/978-94-6463-636-9_18

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