Research On Issues Related To China’s Capital Account Liberalization

With in-depth development of economic globalization and financial liberalization, worldwide capital flows has been one of the most concerned issues and widely discussed topics for economists and the international community. The impact of the European debt crisis on the regional and global economy has not been controlled completely and effectively, and the problem of excess liquidity caused by the quantitative easing policy of the United States and other developed countries will pose serious challenges to emerging market countries. In the face of the current international economic and financial situation, we must be more cautious on promoting the capital account liberalization, minimizing the impact of capital flows on economic and financial stability while enjoying the various benefits of international capital flows.Based on the latest international economic and financial situation and guided by international economics and international finance theories, the paper uses a combination of research methods of theoretical analysis, comparative analysis and empirical analysis to explore how to take effective measures with reasonable systemic arrangements to guarantee the smooth progress of China’s capital account liberalization process. The paper first makes a brief introduction of the theory related to capital flows and capital account liberalization, including the connotations, conditions, paths, arrangements of the order and steps of capital account liberalization, and the "trilemma" theory. Followed by reviewing the capital account liberalization process of some typical countries in Asia and key emerging market economies, the paper summarizes the available international experience and lessons and provides a useful reference for the path-choosing, step arrangements and implementations of support measures for China’s capital account liberalization process. After a brief overview of major policies of promoting the liberalization of the capital account taken by China since1996, the paper focuses on the analysis of the status and characteristics of direct investment, security investment and other investments in China’s capital account, and then indicates that the freedom degree of China’s capital account at this stage is still below the international average, with urgent need of further liberalization. The paper makes a clear judgment that the main risks faced by China’s capital account liberalization process, including the imbalance of international payments, the risk of macroeconomic and financial system instability, and the risk of the "trilemma", are all basically under control. Taken domestic and international environment and relevant experience of reform and opening up process into consideration, the paper believes that China should take a gradual opening-up approach and makes recommendations for sequenced arrangements both internally and externally for China’s capital account liberalization process. At the same time, the paper emphasizes the importance of the implementation of related support measures, including macro-prudential policy, interest rate marketization and exchange rate formation mechanism reform, monitoring and early warning mechanisms and the international exchange of experience and policy coordination.