Dynamics of gross capital flows and financial stress in China

In a time series analysis for China, we support an argument from cross-sectional studies that it is necessary to analyze gross capital inflows and outflows separately, rather than focusing only on net inflows, because they are affected by different global-common and country-specific factors. Particularly, although not having experienced extreme financial crisis episodes, China's capital flows are influenced by both global and domestic financial stress. Global risk pushes foreign capital to China and retrenches China's foreign investments. Domestic financial stress reduces foreigners' investments to China, but does not affect domestic investors' investments abroad.