3 key takeaways from Prof Huang Yiping on China’s capital account opening – should China open it up? When, and how?
(1) capital account opening is an easy choice for China. 1/7
(2) there is probably not a so-called best timing for this move, and it could be a good timing to do this when the economy and financial market are not doing perfectly well, because in that case policymakers would be more vigilant against risk factors. 2/7
(3) it’s important to remain prudent and open up in a steady manner, and China needs to press ahead with the task in due order and take necessary macro-prudential measures to make sure that the opening-up is robust and sustainable. Tobin tax could be taken as a good example. 3/7
Opening of its capital account and the financial sector must be promoted in due order, and it’s important to follow 3 principles...4/7
First, “real economy over finance”. It should address problems faced by its real economy such as thwarted trade and lack of fiscal support before considering financial opening and related issues. 5/7
Second, “domestic over external”. China should improve its domestic interest rate and market regimes before thinking about how to open wider to the other parts of the world. 6/7
Third, “exchange rate over capital”. China needs to straighten out its exchange rate regime before liberalizing cross-border capital flows. 7/7
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