A Research On The Effectiveness Of The Capital Control In China

Capital account liberalization has been regarded as the last step of the economic liberalization.However,because the capital account liberalization will bring increased economic uncertainty in economic operation,many developing countries tend to be cautious about opening their capital account.China is no exception.In 2008,the outbreak of the global financial crisis made educational and political circles in China realize that the internationalization of RMB would help to maintain Chinese interests in financial world.Therefore,China started to facilitate the internationalization of RMB.Recently,since the internationalization of RMB objectively entails more open capital project,there arises heated discussion about whether to speed up the opening of the capital account in educational circle.The opposite of opening capital account is to control capital account.Discussing the effectiveness of Chinese capital account control is helpful for us to grasp the schedule and rhythm of capital liberalization.In this paper,there are three aspects to discuss the effectiveness of Chinese capital control.Firstly,judged by the policies and regulations on capital projects made by Chinese State Administration of Foreign Exchange during the period from 2001 to 2013,the strength of Chinese capital control will be appropriately described over the past 13 years.Secondly,based on the two angles-independence of monetary policy and capital flow control,the effectiveness of Chinese capital control will be empirically analyzed from 2001 to 2013.Thirdly,the author will use Edwards--Khan model to confirm and calculate the static coefficient of realizing the effectiveness of capital control.Considering that China is in the period of economic transition,institution economic environment here has been changing,its effectiveness of capital control is supposed to be changing.Thus,the author will use Kalman filtering model to make dynamic parameter estimation on the effectiveness of capital control.The result shows that the average value of the effectiveness of capital control from 2001 to 2013 is only 0.483424,with the overall downward trend.According to the analysis results,the author can draw several important conclusions as follows: Chinese capital control is partially effective,but in the long term,its effectiveness is waning;Chinese capital control on short-term capital is partly effectively,but the effectiveness of capital inflows control is stronger than that of capital outflow control.In consideration of the alternate trouble about capital flight and the influx of hot money China has faced over the past 13 years,the author will give advice on how to strengthen the short-term capital control on short-term capital flow;considering that the capital account liberalization is the trend in the future for China,how to determine the steps of capital account liberalization is an extremely important topic,the author will also give his views at the end of the paper.