Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China

Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China
Author: Mr.Tamim Bayoumi
Publisher: International Monetary Fund
Total Pages: 32
Release: 2013-08-28
Genre: Business & Economics
ISBN: 1475532156

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This paper assesses the implications of Chinese capital account liberalization for capital flows. Stylized facts from capital account liberalization in advanced and large emerging market economies illustrate that capital account liberalization has historically generated large gross capital in- and outflows, but the direction of net flows has depended on many factors. An econometric portfolio allocation model finds that capital controls significantly dampen cross-border portfolio asset holdings. The model also suggests that capital account liberalization in China may trigger net portfolio outflows as large domestic savings seek to diversify abroad.

The Chinese Approach to Capital Inflows

The Chinese Approach to Capital Inflows
Author: Mr.Eswar Prasad
Publisher: International Monetary Fund
Total Pages: 63
Release: 2005-04-01
Genre: Business & Economics
ISBN: 1451860986

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In this paper, we adopt a cross-country perspective to examine the evolution of capital flows into China, both in terms of volumes and composition. China's inflows have generally been dominated by foreign direct investment (FDI), a pattern that appears to be favorable in light of the recent literature on the experiences of developing countries with financial globalization. We provide a detailed documentation of the evolution of China's capital controls, a proximate determinant of the pattern of capital inflows. We also discuss a number of other intriguing hypotheses that attempt to capture the "deeper" causes underlying China's approach to capital flows. In particular, we argue that some popular mercantilist-type arguments are inconsistent with the facts. We also analyze the recent rapid rise of China's international reserves and discuss its implications. Contrary to some popular perceptions, the dramatic surge in foreign exchange reserves since 2001 is mainly attributable to non-FDI capital inflows, rather than current account surpluses or FDI.

Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China

Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China
Author: Mr.Eswar Prasad
Publisher: International Monetary Fund
Total Pages: 32
Release: 2005-01-01
Genre: Business & Economics
ISBN: 1451975457

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This paper reviews the issues involved in moving towards greater exchange rate flexibility and capital account liberalization in China. A more flexible exchange rate regime would allow China to operate a more independent monetary policy, providing a useful buffer against domestic and external shocks. At the same time, weaknesses in China’s financial system suggest that capital account liberalization poses significant risks and should be a lower priority in the short term. This paper concludes that greater exchange rate flexibility is in China’s own interest and that, along with a more stable and robust financial system, it should be regarded as a prerequisite for undertaking a substantial liberalization of the capital account.

Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China

Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China
Author: Mr.Tamim Bayoumi
Publisher: International Monetary Fund
Total Pages: 32
Release: 2013-08-29
Genre: Business & Economics
ISBN: 1475591446

Download Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China Book in PDF, Epub and Kindle

This paper assesses the implications of Chinese capital account liberalization for capital flows. Stylized facts from capital account liberalization in advanced and large emerging market economies illustrate that capital account liberalization has historically generated large gross capital in- and outflows, but the direction of net flows has depended on many factors. An econometric portfolio allocation model finds that capital controls significantly dampen cross-border portfolio asset holdings. The model also suggests that capital account liberalization in China may trigger net portfolio outflows as large domestic savings seek to diversify abroad.

The Size and Destination of China's Portfolio Outflows

The Size and Destination of China's Portfolio Outflows
Author:
Publisher:
Total Pages: 36
Release: 2018
Genre: Electronic books
ISBN:

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'The size of China's financial system raises the possibility that the liberalization of its capital account could have a large effect on the global financial system. This paper provides a counterfactual scenario analysis that estimates what size and direction of China's overseas portfolio investments would have been in 2015 if China had had no restrictions on these outflows. In such a scenario, China's holdings of overseas portfolio assets would have been between US$1.5 trillion and US$3.2 trillion (13 to 29 per cent of Chinese GDP), or 5 to 12 times its actual holdings of US$281 billion. Our model estimates that these additional holdings would have been predominantly directed to the world's deepest financial markets, especially the United States, while emerging-market economies would have received little additional portfolio investment. These results suggest that the liberalization of Chinese portfolio outflows may not prove disruptive to the global financial system, although it could have important implications for China.'

Measuring the On-Going Changes in China's Capital Flow Management

Measuring the On-Going Changes in China's Capital Flow Management
Author: Jinzhao Chen
Publisher:
Total Pages: 28
Release: 2015
Genre:
ISBN:

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Liberalizing China's capital account may impose profound implications on the RMB exchange rate, monetary policy autonomy, Chinese and the world economy. Owing to the scarcity of proper measurements for China's capital controls, rigorous studies on the effectiveness and implications of China's capital controls are limited. We contribute to the literature by creating a new index data set containing de jure and hybrid measurements of the changes in China's capital controls, hoping to inspire a new avenue of research on China's capital controls. Contrasting to other capital control indices that are compiled in yes-or-no style, we quantify the intensity changes of China's capital controls. Our indices reveal a persistent but uneven process of capital account liberalization in China during 1999 and 2012. This paper describes the de jure and hybrid indices, including indices for individual asset categories, gross flows, inflows and outflows, as well as resident and nonresident. Understanding that China usually implements policies step by step in the gradualism style, we extract those small-step information from the lines of the text in IMF's Annual Report on Exchange Arrangement and Exchange Restrictions (AREAER) and some supplementary materials from other sources. This allows us to incorporate as detailed and accurate information as possible about China's capital controls.

Capital Flow Deflection

Capital Flow Deflection
Author: Paolo Giordani
Publisher: International Monetary Fund
Total Pages: 47
Release: 2014-08-08
Genre: Business & Economics
ISBN: 1498317499

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This paper focuses on the coordination problem among borrowing countries imposing controls on capital infl ows. In a simple model of capital flows and controls, we show that inflow restrictions distort international capital flows to other countries and that, in turn, such capital flow deflection may lead to a policy response. We then test the theory using data on inflow restrictions and gross capital inflows for a large sample of developing countries between 1995 and 2009. Our estimation yields strong evidence that capital controls deflect capital flows to other borrowing countries with similar economic characteristics. Notwithstanding these strong cross-border spillover effects, we do not find evidence of a policy response.

What to Expect when China Liberalizes Its Capital Account

What to Expect when China Liberalizes Its Capital Account
Author: Mark Kruger
Publisher:
Total Pages: 28
Release: 2016
Genre: Capital movements
ISBN:

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When China joined the World Trade Organization in December 2001, it marked a watershed for the world economy. Ten years from now, the opening of China's capital account and the financial integration that will unfold will be viewed as a milestone of similar importance. This paper discusses the benefits, to China and the rest of the world, of deepening China's capital account liberalization. We assess China's current level of de jure and de facto integration, in relation to other G20 economies. We update the Pasricha et al. (2015) data on capital control actions to 2015 for China, to assess China's international financial integration. We also look at its relative international investment position to gauge its de facto integration. We then estimate the size and composition of capital flows likely to ensue assuming that China's further capital account liberalization results in its gross international investment position converging to that of the G20 average. In addition, we discuss the risks involved with the further opening of China's capital account and how they can best be managed. We also emphasize the potentially stabilizing effects of residents' flows and the importance of liberalizing inflows and outflows in a balanced way and at the same time.

Modernizing China

Modernizing China
Author: W. Raphael Lam
Publisher: International Monetary Fund
Total Pages: 392
Release: 2017-01-14
Genre: Business & Economics
ISBN: 1513539949

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China is at a critical juncture in its economic transformation as it tries to rebalance what is generally seen as an exhausted growth model. A unifying theme across the reforms that will deliver this transformation is that it can no longer be achieved by raising the amount of physical investment and government direction of resource allocation. Instead China is building a new set of policy frameworks that will allow markets to function more effectively—not unfettered markets, but markets that work efficiently, in line with broad social and other policy goals, and in a sustainable way. Hence, China is now building a new soft infrastructure, that is, the institutional plumbing that underpins and guides the functioning of markets as the key organizing principle toward achieving sustained economic and social progress. Against this background, this volume provides policymakers, academics, and the public with valuable information about policies and institutions in China today. It also looks at the road ahead and key principles that can help China in navigating it. The book focuses on issues crucial in the country’s transformation, such as tax policy and administration, social security, state-owned enterprise reform, medium-term expenditure frameworks, the role of local government finances, capital account liberalization, and renminbi internationalization. As China moves toward a more price-based allocation of resources, strengthening monetary policy frameworks and financial sector regulation will be particularly important in channeling resources to the most productive sectors and minimizing the risks of financial sector stress. Also, upgrading statistical frameworks will be critical for macroeconomic policymaking and investors. Visit : http://www.elibrary.imf.org/page/modernizing-china

Capital Account Liberalization

Capital Account Liberalization
Author: Peter Blair Henry
Publisher:
Total Pages: 82
Release: 2006
Genre: Capital
ISBN: 9780979037634

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"Writings on the macroeconomic impact of capital account liberalization find few, if any, robust effects of liberalization on real variables. In contrast to the prevailing wisdom, I argue that the textbook theory of liberalization holds up quite well to a critical reading of this literature. The lion's share of papers that find no effect of liberalization on real variables tell us nothing about the empirical validity of the theory, because they do not really test it. This paper explains why it is that most studies do not really address the theory they set out to test. It also discusses what is necessary to test the theory and examines papers that have done so. Studies that actually test the theory show that liberalization has significant effects on the cost of capital, investment, and economic growth"--National Bureau of Economic Research web site.