The Inflow Of Foreign Capital And Chinese Capital Formation Efficiency Study

With the rapidly increasing of foreign capital inflow, the domestic savings and the foreign exchange reserve have been both kept in a high-speed growth in China from 1990. Since there are so many effective factors applied to Chinese economy by foreign owned economy, we catch on the special economic phenomenon that is why we are dedicated to attracting foreign capital while we have enough domestic savings. So, we try to analysis the effect system affected by the foreign capital emphasizing on the "capital formation efficiency".That foreign capital inflow and domestic savings overflowing happening contemporaneously indicates that foreign capital are squeezing out some domestic capital, and the essential in demands for foreign capital is that there is not enough domestic investment rather than there is not enough domestic savings. The thesis interprets this squeeze-out effect from the following three aspects: the enterprises, the industry and the whole country. On the other hand, economy system and construction such as the vulnerability of bank system, the financial shallow and the non-institutionalized finance system are all the radical reasons that the savings could not turn into efficient investment smoothly.As a result, we draw a conclusion: it is important to utilize foreign capital more efficiently to advance capital formation efficiency in China, and it is much more important to utilize domestic capital more efficiently to advance transition system of domestic savings into effective investment. Based on the financial system reform, we should utilize domestic capital adequately; avoid squeezing out effect; and make investment out of China.