THE IMPACT OF INTERNATIONAL CAPITAL FLOWS ON CHINA'S FINANCIAL STABILITY

Abstract

Since China joined WTO, it has accepted the inflow of international capital into China with a more open attitude. The purpose of this study is to analyze the impact of international capital flows on China's financial stability. In this research, I will collect the data of long-term Capital flow including Foreign Direct Investment, Portfolio Investment and Foreign Debt，short-term capital flows, such as Hot Money, and Other Investment to analyze the flow of international capital into China. In addition, I will use four indicators including Bank Credit Amount, Supply of Money, Foreign Reserve Variation and Trade Surplus to study China's financial stability. Through data analysis by SPSS software, Pearson Correlation Test and Multiple Linear Regression will be used to verify the relationship between the two variables. After verification, I determined that international capital flows would affect Bank Credit Amount, Supply of Money, Foreign Reserve Variation and Trade surplus. Therefore, it is important to strengthen international capital controls. Finally, some suggestions on China's financial stability will be made.