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China’s Economic Growth and International Capital Flows

Author

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  • Qing-yuan Sui

    (Professor, School of Economics and Business Administration, Yokohama City University)

Abstract

In contrast with Japan’s high growth experience, post-reform China’s growth and development have largely depended on foreign capital. China has accumulated huge amounts of foreign reserves through current surplus and inward foreign direct investment (FDI). To the extent that the management of foreign assets has been inefficient and the huge amount of foreign reserves represents some degree of international disequilibrium, reforming the foreign reserve holding management is a high priority. From the mid-1990s to the outbreak of the Global Financial Crisis, inward FDI to China has been large and relatively stable. However, the source of funds has been concentrated in some particular areas and the investment destinations concentrated in eastern coastal regions. Hence the use of foreign capital has likely exacerbated regional imbalances. Except for some special periods, both the inflow and outflow of portfolio investments have been relatively small. The so-called hot money has been highly correlated with other investments, which means that more attention should be paid to capital flows through the banking sector. By the time-series analysis, we found that after the Global Financial Crisis, hot money flowing into China has responded to the US monetary policy stance in a way which is more consistent with economic theories than before. Although foreign direct investment does not largely react to US monetary policy, portfolio investment is more sensitive to interest rate spreads.

Suggested Citation

  • Qing-yuan Sui, 2019. "China’s Economic Growth and International Capital Flows," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 15(1), pages 121-150, July.
  • Handle: RePEc:mof:journl:ppr15_01_06
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    References listed on IDEAS

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    Cited by:

    1. Md Kamal Hossain & Md Shamim Hossain, 2023. "Causal Interaction between Foreign Direct Investment Inflows and China’s Economic Growth," Sustainability, MDPI, vol. 15(10), pages 1-18, May.

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    More about this item

    Keywords

    Chinese economy; international capital flows; spillover effects; hot money;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F2 - International Economics - - International Factor Movements and International Business
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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