Influence Of Short-term Capital Flow On Financial Security In China And Early Warning

First, this paper finds out the status of short-term capital flows in China with normative and positive analysis. We find the main reasons for short-term capital flowing:appreciation of the RMB, China-US interest rate spread, the return of capital market, China's macroeconomic environment and so on. By estimating the size of short-term capital flows, we find that the net value of short-term capital flows increases, and it becomes more and more violent fluctuations, there has been two-way flow.This paper focuses on the influence of short-term capital flows on financial security with a systematic normative and positive analysis. Theoretical analysis shows that, thanks for capital controlling and huge foreign exchange reserves of our country, short-term capital flows will not lead to financial crisis in short-term, however, it does have negative influences on financial security. Short-term capital flows could cause fluctuations of foreign exchange reserves and money supply, etc.. So it could affect the monetary policies of People's Bank of China. If short-term speculative capital invests in stock market, the market's turnover value and prices will be impacted. And it may cause irrational investment climate. Short-term capital flows could also raise credit risk, market risk, and environmental risks for commercial banks.With the latest data and empirical analysis of cointegration, Granger causality test, impulse response functions, variance decomposition and so on, we analyze the influence of short-term capital flows on the financial security. The empirical results show that short-term capital flows has a negative influence on China's money supply, CPI, the price and turnover value of capital market. Thus, it could affect China's financial security.Finally, we look into the early warning of short-term capital flows. We use financial risk early warning model to do empirical analysis. And the result shows that the recent volatility of China's short-term capital flowing increases, which implies the increasing risk. We set up an early warning indicator system, and then measure the safety of early warning indicators. The results indicate that the current financial risk of short-term capital is low.