« Labor force participation rate watch | Main | Sarah Vowell has it in for Wyoming (and Ohio) »
July 18, 2005
China to ease capital controls
China's economic situation is truly fascinating. Seems like it would be a pretty easy task to collect a series of news articles to supplement an international macro text... just on China.
Case in point, from China Daily:
China plans to further loosen its strict capital controls to boost the competitiveness of its firms overseas, a move which would also relieve building speculative pressure on the yuan.
The State Administration of Foreign Exchange (SAFE) will deepen reforms by improving its management and creating a more supportive foreign exchange framework, Li Dongrong, deputy chief of SAFE, was quoted as saying by Financial News.
"Advancing and deepening the management of foreign exchange and structural reform is required ... so that domestic companies can go overseas and take part in international process of competition," said Li.
The reforms would grant domestic and multinationals in China greater strategic freedom by allowing them to buy more foreign currency as well as lend the money to overseas subsidiaries.
Chinese banks would also be allowed to lend foreign currency to Chinese companies operating in foreign countries directly, Li said.
...
Earlier this month China's central bank governor Zhou Xiaochuan was quoted as saying by local media that supporting Chinese companies to move into international markets was becoming a key strategy of the country's economic development.
The banking chief also said that China should lift certain foreign exchange controls in the near-term to create conditions for the full convertibility of the local currency, but did not say which ones.
China keeps its currency effectively pegged at 8.28 yuan to the dollar, a level that many trade partners say is artificially low and gives the country an unfair boost in trade.
Doing away with curbs on outbound capital flows would also relieve pressure on the yuan and help the bank combat the billions of dollars in speculative money flowing into the country.
Fixed exchange rates, independent monetary policy, and free asset trade--an economy can have at most two of these, not all three. China has been pursuing the first two while capital controls have prevented truly free asset trade. The steps outlined in the article do not totally free up trade in capital, but they represent a step in the right direction if they follow through with it. Of course, the speculation on the possible revaluation of the yuan has stepped up lately. This announcement could be aimed at quelling some of that speculation. Time will tell.
Posted by William Polley at July 18, 2005 11:06 PM
Trackback Pings
TrackBack URL for this entry:
http://www.williampolley.com/cgi-bin/mt-tb.cgi/281
Listed below are links to weblogs that reference China to ease capital controls:
» IT HAPPENED YUAN NIGHT from MaxSpeak, You Listen!
The change in Chinese currency policy is the big econogeek buzz today. There's a Wall Street Journal econoblog on it between Nouriel Roubini and David Altig. Barry Ritholtz chimes in with a typically interesting note. See also Mark Thoma, General... [Read More]
Tracked on July 21, 2005 01:38 PM
Comments
would like to hear more on this topic and M-F 'unholy trinity' in general. seems to apply rather well to china case, but what about flexible exchange rate regimes? specifically--what happens to independent monetary policy when the exchange rate becomes an objective of that policy.
Posted by: Alex at July 19, 2005 11:28 AM