A credible and safe path to Chinese financial liberalization
China's financial policymakers are navigating the challenges of financial liberalization while aiming to attract global investment. The article suggests that instead of choosing between rapid opening or cautious control, China should consider an Adaptive Capital Flow Framework. This framework would allow for predictable capital movement under normal conditions while implementing gradual measures in response to rising systemic risks.
- ▪China aims to internationalize the renminbi and enhance its market infrastructure.
- ▪Financial liberalization has historically led to instability in other emerging economies.
- ▪The proposed Adaptive Capital Flow Framework would allow for predictable capital movement and modulated responses to risks.
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China’s financial policymakers face a genuine dilemma. On one side, the country intends to gain deeper access to global capital markets, internationalize the renminbi and build a world-class market infrastructure that inspires global investors’ confidence and trust. On the other hand, financial liberalization has repeatedly triggered instability in other emerging economies — currency crises, capital flight and loss of monetary policy independence. To date, China has watched those episodes carefully from a position of controlled caution. It’s an approach that protected its economy during the critical early years of its economic rise. The conventional policy debate offers two options: open faster and accept the risks, or stay cautious and accept the constraints.
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Excerpt limited to ~120 words for fair-use compliance. The full article is at Asia Times.
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