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China's Capital Flight: Pre- and Post-Crisis Experiences

Author

Listed:
  • Yin-Wong Cheung

    () (City University of Hong Kong)

  • Sven Steinkamp

    () (Universitaet Osnabrueck)

  • Frank Westermann

    () (Universitaet Osnabrueck)

Abstract

Abstract: We study China’s illicit capital flow and document a change in its pattern. Specifically, we observe that China’s capital flight, especially the one measured by trade misinvoicing, exhibits a weakened response in the post-2007 period to the covered interest disparity, which is a theoretical determinant of capital flight. Further analyses indicate that the post-2007 behavior is influenced by quantitative easing and other factors including exchange rate variability, capital control policy and trade frictions. Our study confirms that China’s capital flight pattern and its determinants are affected by the crisis event. Further, both the canonical and additional explanatory variables have different effects on different measures of capital flight. These results highlight the challenges of managing China’s capital flight, which requires information on the period and the type of capital flight that the policy authorities would like to target.

Suggested Citation

  • Yin-Wong Cheung & Sven Steinkamp & Frank Westermann, 2015. "China's Capital Flight: Pre- and Post-Crisis Experiences," Working Papers 103, Institute of Empirical Economic Research, Osnabrueck University, revised 16 Dec 2015.
  • Handle: RePEc:iee:wpaper:wp0103
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    Cited by:

    1. repec:bla:chinae:v:25:y:2017:i:1:p:32-57 is not listed on IDEAS
    2. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2017. "The RMB Central Parity Formation Mechanism after August 2015: A Statistical Analysis," Working Papers 062017, Hong Kong Institute for Monetary Research.
    3. repec:eee:ecofin:v:44:y:2018:i:c:p:193-203 is not listed on IDEAS
    4. Chen, Jinzhao & Qian, Xingwang, 2016. "Measuring on-going changes in China's capital controls: A de jure and a hybrid index data set," China Economic Review, Elsevier, vol. 38(C), pages 167-182.
    5. repec:spr:chfecr:v:5:y:2017:i:1:d:10.1186_s40589-017-0048-0 is not listed on IDEAS
    6. Anna Wong, 2017. "China’s Current Account : External Rebalancing or Capital Flight?," International Finance Discussion Papers 1208, Board of Governors of the Federal Reserve System (U.S.).
    7. Gunther Schnabl, 2017. "Exchange Rate Regime, Financial Market Bubbles and Long-term Growth in China: Lessons from Japan," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 25(1), pages 32-57, January.
    8. repec:pal:jintbs:v:49:y:2018:i:1:d:10.1057_s41267-017-0129-1 is not listed on IDEAS
    9. Hasnul, Al Gifari & Masih, Mansur, 2016. "Role of instability in affecting capital flight magnitude: An ARDL bounds testing approach," MPRA Paper 72086, University Library of Munich, Germany.

    More about this item

    Keywords

    World Bank Residual Method; Trade Misinvoicing; Quantitative Easing; Capital Controls; Covered Interest Disparity;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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