The Liberalization of Capital Account in China: Retrospect and Prospect

Abstract

As the result of the increasing integration into global financial market, China has been facing larger and more volatile international capital flows. Chinese government adopted a gradual and cautious strategy to liberalize its capital account, which was reflected not only in the transition of regulating emphasis on capital inflow or outflow, but also in the sequencing for liberalization of different types of capital flows. There is a hot debate in China now about whether Chinese government should speed up the capital account opening, and we argue against this idea for several reasons. The further liberalization of Chinese capital account should follow an appropriate sequencing. Price-based tools should replace the traditional quantitative methods. The capital control should be used along with macroeconomic policies and macro prudential regulations. Chinese government should take an active part in the multilateral co-operations to manage global capital flows.