China's Capital Account Convertibility Research

Capital account convertibility is key measure taken by a government to remove limit on capital account trade and exchange in order to be involved into the global economic and financial trend. Since the latter half of 1980s, great changes have taken place in the scale and forms of international capital flow. Capital account convertibility have brought potential profits for a country, as well as exposed the flaws of the economic system and financial market of a country, so that the country faces more risk of external shocks. Therefore, How to adjust policies effectively, put policies in order rationally and find a balance between profit and risk has been a major project with theoretical and practical significance for all the countries which aims to implement capital account convertibility including China.Starting with the researches on capital account convertibility theories both home and abroad, this thesis aims to conduct a systematic research on the profit and risk of capital account convertibility, core conditions, removing capital control, exchange rate system etc. of our country by using the lessons from success and failure of some developing countries, applying modern economics theories, finance theories and international finance theories, combing theoretical and empirical analysis, qualitative and quantitative analysis, vertical and horizontal analysis, general and specific analysis, the current national economic and financial situation.Since capital account convertibility is a systematic project that involves all aspects of reforms, the research on it also includes many contents. Apart from the introduction, the whole thesis is divided into 4 parts. The first part is about the fundamental theories on capital account convertibility, which mainly includes concept definition, profit and risk, order arrangement, exchange rate system, etc. Based on the analysis of the first part, the second part explores on the practical issues as the motives of capital account convertibility, conditions, opportunity, and order by relating to the reality of national economic and financial situation. The third part is about capital control in China, the logic of which with the second part lies in the fact that capital control and capital account convertibility are two sides of a coin. A systematic research on capital control can facilitate a better understanding of capital account convertibility. This part elaborates the theoretic foundation of capital control, recalls the evolutionary history of our national capital control system and predicts on the goal, measures, effectiveness of it. The last part discusses the exchange rate system reform of RMB. A kernel view of this thesis is that exchange rate system reform of RBM should match the capital account convertibility, the level of which determines the risk of capital account convertibility of RMB. Therefore, this part deliberates the evolutionary history of exchange rate system and analyses the flaws in current exchange rate system as well as its future tendency since the reform on exchange rate of RMB on July 21st, 2005.The innovative ideas of this thesis are as follows:1. giving a new definition of capital account convertibility and capital control from a perspective of currency conversion rights based on the analysis of those scholars both home and abroad. This definition laid a foundation for further research.2. putting forward the assumption that capital account convertibility does not have to meet all the conditions while in order lower the risk, has to satisfy a core condition. For different countries, this core condition means differently according to the economic and financial basis. According to the thesis'new definition of capital account convertibility, For China, this core condition is promoting the competence of our export industries.3. In the process of loosening capital control, we have to attach great importance to the matching between capital account convertibility and exchange rate system reforms of RMB. The two are closely inter-related and the detachment of them will lead to the decreasing effectiveness of the macro-economic policies of our country and further cause amounting risks. It is insisted in this thesis that any ideas and conducts which detach capital account convertibility and exchange rate system are dangerous and vicious.