,
6 tweets,
2 min read
Read on Twitter
The Economist (and many others) believe China is heading toward structural current account deficits, and those structural deficits make it safe for China to accelerate the opening of its financial account. I disagree on both counts.
cfr.org/blog/chinas-co…
cfr.org/blog/chinas-co…
China's high savings means the underlying structural pressure is toward significant surpluses, absent extraordinarily credit growth and high off budget sheet spending on infrastructure. 
China lacks the preconditions - limited implicit guarantees, well capitalized banks, efficient domestic markets -to open its financial account safely right now. And if it did open up quickly, outflows would likely overwhelm inflows, putting the CNY under new pressure.
The stability of the CNY -- and of China's BoP and reserves -- has hinged on effective outflow controls, which have limited "hot" outflows (errors and omissions and some disguised outflows in tourism) to what can be supported by China's still substantial goods surplus.
The Economist of course has a very different point of view, they have made the (old) argument that freeing the financial account would force China to make other reforms to its banks (& don't seem too worried about the risk of CNY weakness)
economist.com/leaders/2019/0…
economist.com/leaders/2019/0…
p.s. I first circulated this blog last week
