Abstract
China has the most restricted capital markets in Asia. Constraints on capital freedom have resulted in politicization of investment decisions, corruption, waste of capital, and loss of personal freedom. Ending financial repression in China by liberalizing macro-economic prices and making the Yuan fully convertible would help China become a world-class financial centre. To do so, however, would require widespread privatization and rule of law-both of which would undermine the power of the Chinese Communist Party. The West should be patient with China and recognize that gradual reform and engagement are preferable to destructive protectionism.
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