This paper examines China's international capital flows using monthly time series data from January 1997 to May 2023, derived through an indirect calculation method. A Markov Regime Switching Model is employed to categorize capital flows into distinct states and identify abnormal episodes across different periods. The analysis reveals three key phases: the "Period of Stead Development after the Reform and Opening-Up," the "Period from the Global Financial Crisis to the Quantitative Easing Exit," and the "Period of China's New Normal Development." The model accurately identifies significant abnormal episodes, including the global financial crisis and the COVID-19 pandemic. Additionally, a Time-Varying Parameter Vector Autoregression (TVP-VAR) model is used to investigate the dynamic impacts of geopolitical risk (GPR) on capital flows. The findings indicate that GPR exerts varied effects under different economic conditions, with its influence being predominantly short-term after the global financial crisis but more pronounced and far-reaching in the post-COVID era. The direction of GPR's impact depends on the stage of economic development. Moreover, the effects of the interest rate spread (IRS) and the real effective exchange rate (REER) exhibit structural changes, with REER emerging as a consistently stronger and more significant factor in the post-COVID period.
Chen et al. (Sun,) studied this question.