An open capital account will end financial repression but still a slow path to reform

This report is the first of two looking into capital account liberalisation in China. This report looks at the domestic implications of this reform.

Over the history of the People’s Republic, China has maintained a closed capital account (albeit to varying degrees) – restricting the flow of investment funds in and out of the country and allowing the government to implement a policy of financial repression. Traditional economic theory argues that financial repression is a constraint on economic growth – however more recent research suggests that this policy was critical to China’s model of growth over the past three decades. That said, the benefits of this policy have severely decreased and as China’s growth model evolves, the need for both capital account and financial reform is becoming more urgent.

For the full report, please see the attached document:

China Economic Update – 15 June 2015 (PDF, 114kb)