Why is capital flowing out of China?

Ljungwall, Christer; Wang, Zijian

doi:10.1016/j.chieco.2007.09.001

Cited by 31 publications

(20 citation statements)

References 16 publications

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“…Ma and Sun () argue that larger financial flows may bring so‐called ‘hot money’, which can cause instability in the exchange rate regime. Ljungwall and Wang () show that capital flight from China rose significantly from the late 1980s to the early 2000s and was mainly financed by foreign liabilities, which corroborates the results in Gunter (, ). Cheung and Qian () demonstrate that the momentum of capital flight accelerated in the 1990s and exhibited large fluctuation in the 2000s; they also suggest that the dynamics of capital flight could be well explained by its own history and covered interest rate differentials.…”

Section: Introductionsupporting

confidence: 77%

China's Capital and ‘Hot’ Money Flows: An Empirical Investigation

Cai

Dang

Lai

2016

Pacific Economic Review

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We examine time-series characteristics of China's capital flows during 1998-2014. More specifically, we employ Kalman filtering state-space models to gauge the relative importance of permanent and transitory components in China's overall foreign direct investment (FDI), equity, bond, other investment and bank credit flows. Our results show that only in the case of FDI are both gross inflow and net flow dominated by a permanent stochastic level, suggesting that this source of capital is largely permanent. Incorporating covariates into the state-space models, we find that a larger difference between onshore and offshore renminbi interest rates encourages capital inflows that are dominated by a transitory component. Greater global risk perception, proxied by S&P 500's volatility index, in contrast, discourages them. These covariates imply that capital control may not be effective in stemming volatile and speculative flows. Our results on bilateral capital flows between China and the USA also suggest that these flows are less persistent and more volatile during 1998-2014 than previously found based on 1988-1997 data. Our results bear important policy implications as China engages in further reforms in its domestic financial system and greater integration with the world financial system.

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Section: Introductionsupporting

confidence: 77%

China's Capital and ‘Hot’ Money Flows: An Empirical Investigation

Cai

Dang

Lai

2016

Pacific Economic Review

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“…Most studies have found that external debt is one of the most important empirical causes of capital flight: For every dollar of external debt, roughly 75% to 90% (Hermes and Lensink, 1992) or 80% (Ndikumana and Boyce, 2003) or 60% (Ndikumana and Boyce, 2007) are re-exported overseas in the form of capital flight. Ljungwall and Wang (2008) find that changes in external debts spur changes in capital flight. However, Ajayi (1992) and Nyoni (2000) have found an insignificant effect of external debt flows on capital flight.…”

Section: Capital Inflowsmentioning

confidence: 93%

Capital flight and its determinants in the Franc zone

Ndiaye¹

2009

African Journal of Economic Policy

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List of tables 1. Currency composition of the FZ countries' long-term debt in various currencies (%) 2. Total real capital flight in the FZ (million 2000 $ US, % of GDP and % of external debt), 1970-2005 a 18 3. Descriptive statistics 4. Correlation coefficients 5. Determinants of capital flight in the FZ (World Bank method #) 6. Determinants of capital flight in the FZ (Morgan Guaranty method #) A.1. Macroeconomic performances in the FZ and in non-FZ (in %) A.2. Empirical studies on the determinants of capital flight List of figures 1.

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“…The extant academic studies focus on measuring China's capital flight and, at the same time, recognize a few determinants including exchange rate policy, preferential treatments for foreign capital, domestic and foreign return differentials; see, for example, Gunter (1996,2004), Ljungwall and Wang (2008), Sicular (1998), and Wu and Tang (2000). 4 One hurdle facing studies on capital flight is the measurement issue.…”

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confidence: 99%