Study On The Financial Risk Of China’s Capital Account Liberalization

Since the collapse of the "Bretton Woods System", economic globalization is increasingly deepened, accompanied with financial globalization. In order to adapt to the change of the international macroeconomic, national monetary authorities gradually relax the restrictions on financial markets, cancel the limitation on the financial market access and financial business. Thus, come to an era of financial liberalization which characterized by capital-account liberalization. With the development of the financial globalization and financial liberalization, every countries’ financial system is more and more closely linked together. Increasing the effect in both the breadth and the depth with each other. Capital account liberalization has become a major bright spot in financial liberalization and financial globalization, but we should be clear that capital account liberalization is a "double-edged sword", both have benefits and risks for a country. Advantages are the country can obtain sufficient funds to increase investment, promoting national economic growth and prosperity, Disadvantages are if the country did not establish a corresponding financial system, the rapid outflow and inflow of capital may fuelled domestic economic shocks, endanger the country’s financial security, even cause financial crisis break out.In the 1990s, many countries had accelerated the pace of opening capital account, developing countries and economies in transition had relax or even cancel restrictions on capital account. Since reforming and opening-up, the remarkable achievements have been obtained in our national economy. The amount of foreign trade accounts for the proportion of total world trade increase year by year. At the same time, our country also gradually open capital account, that is a commitment when china joined the WTO in 2001. It is also the problem our country must be faced with when our economic have developed to this stage. It’s the request of deepening the reform of the financial system. Through the research on this question, we can learn more about the difficulty and emphasis in the process of capital account liberalization, we can be better to learn from other countries’ experiences and lessons in the process of capital account liberalization. We can effectively guard against and dissolve all kinds of risks in the process of China’s capital account liberalization, more scientific and reasonable to promote China’s capital account liberalization, safeguard our country’s financial security.This thesis will research the theory and practice of capital account liberalization. First is to define the capital account liberalization and related concept, come with literature review. Secondly, to analyze the risks of capital account liberalization effect in theory. Then empirical analysis the relevance of currency crisis and banking system risk with capital account liberalization. Finally discusses the international experience of capital account liberalization, and give some policy recommendations that how china should to implement capital account liberalization, that in which how to safeguard financial security, guard against financial risk.This thesis use volume method measured the capital account openness of China from 1985 to 2014, come to the conclusion that China’s capital account liberalization is in a rising trend except when global financial crisis outbreak. That is consistent with China’s cautious open mode. Then empirical analysis show that capital account openness has positive correlation with currency crisis and banking system risk. Due to the idealize of the empirical model and did not combined with China’s specific economic situation well, many key problems unsolved, we need further research on this area.