An Empirical Research On Financial Openness Measures And Affecting Factors In China

Since the reform and opening up, China’s financial openness is gradually deepening, the financial system has been great development, it is continuously improving the use of financial resources and allocation efficiency. But the history of China’s financial openness is relatively short, domestic financial markets and financial institutions are not mature, and operation of the financial system not stable, especially,capital supervision system has many loopholes, such as capital flight phenomenon is serious, and scale of international hot money huge.China’s financial market unstable factors is gradually increased, they will have some adverse effects on the development of China’s financial system. First of all, this paper will measure financial openness based on the legal level, use of the analytic hierarchy process to measure financial openness,and Chinn-Ito index to compare among the country’s financial openness.For the selection of China’s financial openness research model, comparison of the international capital flow, interest rate evaluation method, investment rate and saving rate is carried out. Because China is a big and developing economy, it’s investment and saving is related, so the investment saving correlation coefficient can’t represent the financial openness of china. our country is still developing, the interest rate level was largely dominanted by government, official interest rates do not represent the market clearing rate. The interest rate decision model is’ t suitable for study of China’s financial openness. Therefore, this paper considers that the international capital flow method is more suitable for the study of financial openness in China. Based on the consideration of capital flight, the "international hot money" variable is introduced, to modify Huang Ling’s measure model. Using spss20 to analyze the correlation of the model variables, and eviews7.2 to further analyze the effect of financial openness.The Chinn-Ito index indicates that the legal financial openness of our country is still at a low level compared with other countries, and it has been shown that the degree of financial openness of our country is 0.6479. Through the analysis of the international capital flow method, we find that the official reserve assets and hot money in China are very large, but these two factors can not really reflect the financial openness of a country. Horizontal comparison found that China’s financial openness level almost equal to developed countries, but the financial openness of China mainly rely on international trade, large-scale official reserve assets and international hot money. The degree of financial openness in China is same that of major international currencies, but the financial openness of China is due to the large scale of official reserve assets. However, official reserves are based on the official exchange rate arrangement, which is not a cross-border capital transaction with the purpose of investment income, hardly correlation with the financial openness of a country.This paper draws the following conclusions,First, lever of financial openness in China is still relatively low, and the restrictions is much on the policies and regulations. China’s financial openness is far behind other countries, whether a developed country or an emerging market country. This shows that the restrictions of financial openness in China is more than other countries in terms of policy and regulations. Second, the study of financial openness is a lot of methods, this paper considers that the international capital flow method is more suitable for China’s financial openness. Third, the size of China’s hot money and official reserves of assets is large.Fourth, there is a positive correlation between China’s financial openness and trade openness, and the correlation is significant, but the financial openness has no obvious correlation with the direct investment and securities investment openness. There is a significant positive correlation between financial openness and debt investment openness, financial openness and official reserves are significantly positive correlation, and the significant negative correlation with the international hot money.In this paper, we will propose a effective policy suggestions for promoting the healthy development of China’s financial system from the perspective of international trade, international investment, control international hot money.