A Study On Capital Flight In China

Since the1990s, it has been continuing to attract foreign investment while appearing a large number of capital flight in China. In recent years, the RMB exchange rate deviates from the nominal exchange rate to work up appreciation, also the real estate and the reform of state-owned enterprises drive the price of domestic fixed asset up. The RMB expected appreciation and expected inflation of domestic fixed asset have formed double arbitrage spaces, which lead to capital flows from international with Chinese characteristics. In the meantime, the capital flight out of china is serious. So it is formed a game paradox that the abnormal capital flight and international capital inflow exist simultaneously. In this context, on the basis of the research literature from home and abroad for reference, this paper studies the capital flight in china from all directions and angles, such as the modes of the capital flight, scale, motivations, economic effects and the corresponding policy implications.Based on the consensus recognition of capital flight, this paper defines capital flight as the capital Outflow from the territory of China using illegal or legal way, which is beyond the control of the government in order to avoid the domestic policies and economic risks, foreign exchange control, tax collection or for the purpose of transfering asset and so on. Due to different calculation methods, the scale of capital flight will be different. So far, there is no perfect method at least for the existing measuring methods at home and abroad.This paper explores the applicability of indicators about scale measurement and tries to choose and construct suitable model. Then it estimates the scale of capital flight by the amendment of the direct and indirect methods. In fact, the amendment indirect method is a structural calculation method which combins mixing method with structural calculation method. This paper uses the mixing method to calculate the capital flight in investments abroad, while the rights and interests balance adjustment method is prepared for trade mis-invoicing.Why does happen the capital flight phenomenon while the economy still maintains rapid growth and the government continues to encourage foreign investment in China?Based on the Perspective of the Portfolio, the paper builds a general equilibrium model of capital flight. With the connection between SVAR and VAR, it obtains the structure factor decomposition of matrices A and B by applying a certain constraints. Then it takes advantage of the impulse response function and variance decomposition to further study the characteristics of the dynamic changes of capital flight for each shock, as well as the contribution value of each shock impact on capital flight changes. The empirical results show that the interpretation of the shock of labor costs changes is strongest. The interest rate differential and inflation take the second place.Then it’s followed by the changes of expected RMB exchange rate and the real economic growth. Macroeconomic expectation is weakest. Where labor costs and macroeconomic expectation are expected to complement the existing literatures. For an economy, the capital flight is the leakage factor in capital formation, which has the side effect of feedback loop and self-reinforcing.This paper analyzes the economic effects of capital flight from three main aspects, which is capital flight and the domestic economy, capital flight and opening to the outside world, capital flight and social security. It focuses on the the negative effects of capital flight so as to explore the potential impact on our economy. Of course, apart from capital flight is a rational choice based on the "cost-benefit" in a rational person perspective, some aspects effects are not all negative. Capital flight will bring pressure to the economic and social levels, but it is also a momentum for economic development. For the part of the positive effects of capital flight, it should be seen as an opportunity to take advantage of it.Finally, according to the motivations of capital flight, it develops the policies with a combination of leading and block to eliminate the negative impact on our economy fundamentally and minimize the negative effects of capital flight.Firstly, we should establish monitoring mechanisms to prevent capital flight, such as perfecting related financial and legal system, strengthening the linkage of all departments and international cooperation. Secondly, we should continue to promote financial reform, which includes accelerating the construction of marketization of interest rate, further promoting the reform of the RMB exchange rate regime and grasping the degree in the development of capital market.Thirdly, the system innovation also can curb capital flight, such as strengthening the construction of anti-corruption system, improving protection system of private property, establishing modern enterprise system, promoting the tax system reform of enterprises, Optimizing the salary distribution system, adjusting the economic structure, and improving the economic ecological environment.In the face of the phenomenon of capital flight, there is always a dialectical development between changed and unchanged. We should gradually transit to the right direction about the adjustment of economic structure, the acceleration of the transformation of economic growth and improvement the quality of our national economy.