Is Safe Safe Now? Foreign Exchange Regulatory Control Over Chinese Outbound and Inbound Investments and a Political Economy Analysis of Policies

Abstract

The undervaluation and appreciation of Renminbi, the Chinese currency, is probably the most controversial monetary, economic and legal issue between China and its major trading partners, in particular, the United States and the European Union. Along with the pegged Renminbi, Chinese rules and policies on both Chinese outbound and inbound investments are contradictory to each other from time to time. While the Chinese government is trying to implement its “go globally” strategy by pushing Chinese companies to grow globally, Chinese foreign exchange regulatory regime in these respects appears conservative and restrictive. This article focuses on the foreign exchange regulatory regime over both Chinese outbound and inbound investments with the aim to interpreting these conflicting rules and policies from a political economy perspective. Although an economic or legal review of these rules and policies may not disclose any sound rationality, they may make political sense.