The Measurement And Early Warning Of Systemic Financial Risks Of China

Today, the role of financial industry in the national economy is increasinglyimportant. Maintaining financial stability and prosperity not only essential to promotethe development of the financial sector, but also essential on the development of acountry’s political, economic and social stakes. After the gradual opening of China’sfinancial industry on the international market, the level of risk exposure graduallyincreased and maintaining financial stability became increasingly difficult. Now itseems that the indicators of the Chinese economy is running well, however,accompanied by an imbalance of the economic structure, financial regulatory lag, thestatus of a large number of speculative stocks, a large number of real estate bubble,fragile credit system, the accumulation of non-performing assets, China’s financialsystem has been accumulated a lot of contradictions and risks of a future financial crisisexplosion hazard. Build a warning indicator system of financial crisis and the financialcrisis early warning model is very important and far-reaching significant for financialmarkets.This paper first analyzes existing research results at home and abroad, and thenintroduces the basic theory of the financial crisis. In the empirical analysis, this paperbuild China’s financial market pressure index (FSI) from three areas including the bank,the stock market and the foreign exchange market. Then this paper selected29variablesto build an alternative system of early warning indicators from the area ofmacroeconomic, the financial system, international trade and balance of payments andthe foreign economic. We preliminary screening indicators through ADF unit root testand Granger (Granger) causality test. After that, we use the factor analysis extractingfive common factors as Logit Model’s self-variable. Finally, this article used ARIMAmodel to do short-term forecasting of early warning indicators for quarterly values, andthen used Logit model on the basis of the financial crisis for the probability ofshort-term forecasts.The study found that financial market pressure index more in line with China’sactual situation than money market pressure index or foreign exchange market pressureindex. Factor analysis showed currencies, interest rates, inflation, foreign exchange andforeign debt are major sources of stress in financial markets. Logit model showed thatChina’s financial markets behaved less stable in2006,2009and2010, and the probability of a crisis is higher compared to other samples. Logit model’s early warningshowed that, crisis probability in the next four quarters showed a slight upward trend,but no more than0.39-crisis threshold. That is to say, in the coming year, Chineseeconomic operation exists a slight risk, but there is a smaller likelihood of greaterfinancial crisis.