Research On The Process Of China’s Capital Account Liberalization

Since the entry of WTO, China’s current account has been opened to the world as promised. However, the opening of the frequently-announced capital account is still moving haltingly. As indicated by the negative impacts of the Asia financial crisis in1997and the global financial crisis in2008, negative influence of capital flows can lead to damage to China’s stable macro economy and financial market. The present relatively closed capital environment, on the other hand, may enhance China’s resistance to outside risks to some extent. Nonetheless, with economic globalization, the frequency of international economy interaction increases considerably, hence the capital flow scale across borders is expanding rapidly, thus leading to an increase in cost and a decrease in effectiveness in financial market control.At present, China has been the world’s second largest economy. The control of capital account has become the burden of China’s immerging into global financial system. Inconvertibility of the Chinese Yuan has been hindering the efficient allocation of market resources. The opening of capital account is an inevitable must for China. However, further consideration is needed in terms of such controversial issues as the conditions, regulations and a pellucid time schedule of capital account opening.The paper reviewed the concepts of capital account and its opening, concluded the limitation in implementing the classic Impossible Trinity model in China, discussed the advantages and disadvantages of capital account opening theoretically, and analyzed general requirements for capital account opening. Meanwhile, lessons of capital account opening by other countries are drawn to give advices to China’s progress. Based on the above discussion, the domestic history and policy changes of capital account opening are further reviewed. In addition, test results of opening China’s capital account are introduced and the present status and traits of current capital account control in China are also analyzed. For the next step in capital account opening, some scholars reckon that the basic conditions are ready. They proposed general principles and process for accelerating the action and bolstering the coordination with other financial institutions. However, given the present domestic macro-economic status, enterprise prosperity index and formation mechanism of domestic interest and exchange rate, the paper holds that the marketization of interest and exchange rate should be implemented simultaneously to avoid the impacts of short-term capital flow caused by casual openness. Permission to the private capital’s entry to financial system at an early stage could give native finance institutes more time for self-adjustment. Meanwhile, the paper emphasized the importance of supportive measures, including macro-prudential policy, effective information supervisory mechanisms, and close international cooperation.