Summary:
Cross-border finance substantially affects global economic growth and financial stability in the open economy, which is a crucial topic with academic and practical implications. After the 2008 Financial Crisis, the global economic and financial landscape underwent profound changes with new trends emerging in the driving forces and changing patterns of cross-border finance. In the current complex situation, clarifying the rules and features of global cross-border finance could improve China's “two markets and two resources” policy and prevent external financial risks. This paper examines the key driving factors and changing patterns of global cross-border finance after 2008, analyzes the development trend of China's cross-border finance from an international perspective, and proposes suggestions for future prospects. This paper shows that after 2008, the main driving forces of global cross-border finance were the slowdown of global economic growth, increased imbalance in regional economic development, declined current account deficits, loosened global liquidity, narrowed risk-free rate of return, and growing “search for yield” motivation. In addition, the global financial structure changed massively and the share of nonbank financial institutions rose significantly. Regulations on cross-border capital flows became stricter, foreign direct investment (FDI) inspections were enhanced significantly, and banks' cross-border regulations tightened. The patterns of cross-border finance changed dramatically. The scale of cross-border capital flows declined and the structure of cross-border finance changed with a decreasing share of FDI, while the proportion of portfolio investments and other investments increased. The direction of cross-border finance diverged, with FDI mainly flowing to emerging economies, while developed economies were still the main destination for portfolio investments and other investments. Nonbank financial institutions were playing an increasingly important role in cross-border finance and the US dollar was still the dominant currency. Since then, the features of cross-border financial risks have changed, with portfolio investment having increasing impacts on financial stability, the vulnerability of the nonbank sector having increased, and currency mismatches remaining prominent in several emerging markets. The banking sector responds to low interest rates by optimizing the allocation of cross-border assets and liabilities, expanding noninterest income, and enhancing effective cost-control measures. Banks obtain cross-border customers through digital channels and improve cross-border operating efficiency through digital technologies. Furthermore, the stability of banks is improved by fewer complicated and interlinked businesses. With the acceleration of economic transformation and opening-up, China's cross-border finance activities have a greater influence on the balance of international payments with a growing share in global cross-border capital flows. China's international investment assets are more balanced, with FDI rising rapidly and portfolio investments and other investments increasing steadily. China's international investment liabilities are also growing much faster, but FDI still occupies a dominant share of cross-border finance while the proportion of portfolio investments increases significantly. With the growing volume of cross-border finance, the increased complexity and risk are mainly reflected in the increasing pressure of FDI inspections, the rapid increase in portfolio investment liabilities, and the growing compliance risk of banks' cross-border businesses. In the future, developing cross-border finance in the context of China's construction of a new development pattern, in which the domestic cycle is at the center with dual domestic and international cycles promoting each other, will be of great importance. China should achieve its goals of serving the real economy and promoting trade and investment facilitation. The formation of a cross-border capital structure matches the features of China's economic and financial development. China should also take advantage of the pull effects of FDI, especially in the areas of high-tech manufacturing and producer services. In addition, China should balance the relationship between opening-up and risk by using the exchange rate as an “automatic stabilizer” for the macro-control system and the international balance of payment, strengthen the monitoring of short-term foreign debts and the trading behaviors of investment entities, enhance the comparative advantages of the banking sector in cross-border finance, and develop new patterns through bank internationalization.
[1]《中共中央关于制定国民经济和社会发展第十四个五年规划和二〇三五年远景目标的建议》,2020年10月。 [2]Barry, E., et.al., 2003. “Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters”, NBER Working Papers 10036. [3]Barry, E., et.al., 2021. “Financial Globalization and Inequality: Capital Flow as a Two-Edged Sword”, IMF Working Papers 2021/04. [4]Bernanke, B.,2005. “The Global Saving Glut and the U.S Current Account Deficit”, Speech 77, Board of Governors of the Federal Reserve Systems. [5]Bank of International Settlement (BIS),2021. “Basel Ш Monitoring Report”, Sep,2021. [6]Bank of International Settlement (BIS),2021. “Central Bank Digital Currencies for Cross-Border Payments: Report to the G20”, Committee on Payment on Market Infrastructures, July,2021. [7]Bank of International Settlement (BIS),2009. “Capital Flows and Emerging Market Economies”, Committee on the Global Financial System Papers No.33. [8]Bank of International Settlement (BIS),2020. “US Dollar Funding: An International Perspective”, Committee on the Global Financial System Papers No.65. [9]Bank of International Settlement (BIS),2021. “Changing Patterns of Capital Flows”, Committee on the Global Financial System Papers No.66. [10]Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters”, NBER Working Papers 10036. [11]Financial Stability Board (FSB),2020. “Holistic Review of the March Market Turmoil”, Nov, 2020. [12]Gourinchas, P. & J., Oliver,2007. “Capital Flows to Developing Countries: The Allocation Puzzle”, CEPR Discussion Papers 6561. [13]International Monetary Fund,2020. “IMF Advice on Capital Flows”, Independent Evaluation Office (IEO), 2020. [14]Lucas, R.,1990. “Why doesn't Capital Flow from Rich to Poor Countries?”, American Economic Review.80(2):92-96. [15]Mckinsey, 2019. “Global Transaction Banking: The $1 Trillion Question”, Sep,2019. [16]Monetary and Economic Department, 2021. “CBDCs Beyond Borders: Results from a Survey of Central Banks”, BIS papers No.116. [17]UNCTAD. “World Investment Report 2021”, May, 2021.