Good points by @S_Rabinovitch.
Would just note that for all of China's trade integration, China financially is very weakly integrated into the world. World is underweight Chinese financial assets, China's private sector is underweight global financial assets.
Would just note that for all of China's trade integration, China financially is very weakly integrated into the world. World is underweight Chinese financial assets, China's private sector is underweight global financial assets.
Dropping controls would allow rapid integration -- and potentially allow large outflows (or inflows) as the pace of integration might not be symmetric. The risk right now is quite clearly that outflows from high saving China would exceed inflows, given China's financial risks
The corollary would be that China returns to a large current account surplus financed out of its large stock of savings - but given China's current weakness that surplus could be sustained without intervention (unlike the 2002-2013 surplus ... ) given large private outflows.
Call me old fashioned, but I think that is a worse equilibrium for the world than what we have now. Safe course forward requires China clean up domestic financial system and build out social safety net before fully liberalizing the financial account ...
