Quantitative Easing Policy and Cross-border Capital Arbitrage:Evidence from False Trade Channel
Based on the trade data from mainland China to Hong Kong at the HS 6-digit product level from 2004 to 2013,we examine cross-border capital arbitrage in the context of Quantita-tive Easing policy from the perspective of false trade.We find that the increase of carry trade will significantly increase the export value of products from mainland China to Hong Kong,the pro-portion of false exports,and the re-import value,and this phenomenon is concentrated in prod-ucts with high value-to-weight ratios.Quantitative easing policy by the Federal Reserve will fur-ther encourage companies to carry out carry trades through false trades.We also find that compa-nies will participate in entrusted loans with cross-border funds obtained through carry trades,and quantitative easing policy has promoted this behavior.In addition,the increase of arbitrage income will prompt the transformation of entrusted loans from"equity-related to non-equity-related".The research of this paper reveals the impact of quantitative easing policy on cross-border capital arbitrage,and provides policy suggestions to prevent and resolve cross-border capital and financial risks.
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