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Capital flows and domestic market integration in China


  • Li Qi


This paper examines whether reforms have created a substantial commercial sector with market characteristics in China's financial system. Many studies conclude that the operation of China's capital markets lacks market features, resulting in fragmentation. Yet, this lack of integration coincides with rapid and continuous economic growth. We study the dynamic pattern of domestic capital mobility with a unique data set on provincial savings and investment, which allows us to examine components as well as aggregates. After stripping out foreign and officially influenced funds, we find that the behavior of capital flows in what we define as China's commercial sector looks increasingly like that of interstate flows in the US and other advanced nations. Tracking the direction and size of capital flows also highlights the different behavior of commercial and non-commercial funds transfers in China. This result undercuts the widespread view of China's economy as lacking domestic integration.

Suggested Citation

  • Li Qi, 2010. "Capital flows and domestic market integration in China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 8(1), pages 67-94.
  • Handle: RePEc:taf:jocebs:v:8:y:2010:i:1:p:67-94
    DOI: 10.1080/14765280903488355

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    References listed on IDEAS

    1. Alun H. Thomas, 1993. "Saving, Investment, and the Regional Current Account; An Analysis of Canadian, British, and German Regions," IMF Working Papers 93/62, International Monetary Fund.
    2. John F. Helliwell & Ross McKitrick, 1999. "Comparing Capital Mobility Across Provincial and National Borders," Canadian Journal of Economics, Canadian Economics Association, vol. 32(5), pages 1164-1173, November.
    3. James Laurenceson & Joseph C.H. Chai, 2003. "Financial Reform and Economic Development in China," Books, Edward Elgar Publishing, number 2714.
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