Valuation Channel and Losses of Chinese External Wealth

Zefang Liao, Jianpeng Zhang, Bing Li

1Financial Research Center Fudan University, Shanghai, China; 2Guangdong Ocean University, Zhanjiang Guangdong,.
1Financial Research Center Fudan University, Shanghai, China; 3China; School of Economics and Business Administration, Shanxi University, China..
Financial Research Center Fudan University, Shanghai, China.

DOI: 10.4236/ib.2013.53B005                

Abstract

Based on the intertemporal theoretical framework of Gourinchas and Rey ( 2005), using Vector Error Correction Model and time-varying Space State Model, the paper estimates the return and factors of China’s net foreign assets. The results show that significant negative valuation effects in the change of net foreign assets and its sub-category, “risk assets”, especially at short and medium horizons. The fluctuation of assets prices arising from international financial crisis and appreciation of RMB contribute to the losses of external wealth, implying much wealth outflow to other economies.

Keywords

Capital Flows; Net Foreign Assets; Valuation Effects

Conflicts of Interest

The authors declare no conflicts of interest.

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