Although #China’s capital account today has basically realized convertibility, there remain many restrictions on cross-border #capital flows. What is a proper timing for China to open up its capital account? Prof Huang Yiping offers his perspectives:
mp.weixin.qq.com/s/9vGWq_hYC5Ge… 1/7
This is a controversial issue. Some believe China should step up efforts right now; others say it’s not a good timing. Prof Huang previously thought the best timing for this is when the macroeconomic environment is stable...2/7
...with strong growth, stable inflation, fiscal balance, balance of payments surplus, and a properly valued currency, because under these conditions investors are confident in capital account opening, and it’s easier to prevent against asset price slumps or capital flights...3/7
But after examining experiences of other developing countries, he now believes opening up the capital account at the so-called good timing can also incur risks, because huge capital inflows could overheat the economy and bring about asset bubbles and #currency overvaluation...4/7
At this time, once a risky factor sees undesirable reverse it could trigger financial fluctuations, risks or even a crisis. Opening up the capital account when the #economy and #finance are doing well could lead to buildup in new risk factors...5/7
Another problem is that when the economy is good, people tend to overlook risk factors, which explains why many economies ended up with financial crises even though things had been going well when they first opened up...6/7
His conclusion is that now may not be the best timing for China to open capital account. Opening up when the economic and financial landscapes are not very ideal could keep policymakers and the market alert against risk factors, which may be more prudent and sustainable. 7/7
Share this Scrolly Tale with your friends.
A Scrolly Tale is a new way to read Twitter threads with a more visually immersive experience.
Discover more beautiful Scrolly Tales like this.