Excellent FT oped by @michaelxpettis. Rapid financial account liberalization would put China's financial stability at risk, as financial stability hinges on the fact that most Chinese debt is a claim of one state institution on another state institution.
ft.com/content/14fe74…
ft.com/content/14fe74…
@michaelxpettis I agree with Pettis on this -- financial account liberalization before deep financial reform would be a mistake.
@michaelxpettis 2015 is a real world illustration of the risks.
China had opened up to short-term bank flows after 2011 -- which led to a rapid rise in short-term cross border claims on China.
Those carry driven flows reversed after the 2015 deval, leading to $300b in outflows in 3qs
China had opened up to short-term bank flows after 2011 -- which led to a rapid rise in short-term cross border claims on China.
Those carry driven flows reversed after the 2015 deval, leading to $300b in outflows in 3qs
@michaelxpettis The current wave of inflows has been driven by portfolio flows rather than s-term bank flows, so it is less prone to a full on reversal --
But opening before reform still creates significant risks.
But opening before reform still creates significant risks.
