Title: Capital Account Liberalization in China: The Need for a Balanced Approach

Editor: Kevin P. Gallagher

Published: Boston University

Pages: 140

Preface and Acknowledgement:

This report of the Task Force on Regulating Capital Flows for Long-Run Development is a project of the Global Economic Governance Initiative (GEGI) at Boston University, USA. Co-directed by Boston University Professors Kevin P. Gallagher and Cornel Ban, GEGI’s mission is to advance policy relevant knowledge on governance for financial stability, human development, and the environment. GEGI is housed across three entities at Boston University—the Pardee School for Global Studies, the Center for Finance, Law & Policy (CFLP), and the Pardee Center for the Study of the Longer-Range Future.

Along with GEGI’s Kevin P. Gallagher, the co-chairs for this Task Force report are José Antonio Ocampo from the Initiative for Policy Dialogue (IPD) at Columbia University, and Ming Zhang and Yu Yongding from the Institute for World Economics and Politics (IWEP) at the Chinese Academy of Social Sciences. GEGI, IPD, and IWEP are the co-sponsors of this report, and IWEP will publish the report in Chinese.

This is the third in a series of reports of this Task Force. This report, Capital Account Liberalization in China: The Need for a Balanced Approach, examines the benefits and risks of accelerated capital account liberalization in China. To help frame the discussion, the Task Force thought it would be helpful to discuss the experience of other emerging market countries
that liberalized the capital account in the past, in order to draw out lessons for China as it considers this delicate task. The previous Task Force report, Capital Account Regulations and the Trading System: A Compatibility Review, also remains salient here. In that report, we found that an increasing number of trade and investment treaties prohibit the regulation of capital flows, and we recommended that such treaties have safeguards that enable nations to regulate capital flows to prevent and mitigate the harmful aspects of cross-border finance. The first report, Regulating Capital Flows for Long-Run Development, also remains salient, and highlights developments in economics and country experience that show why it is important to regulate capital flows now more than ever.

First and foremost, we thank those who provided financial support for the Task Force. The Ford Foundation has provided the core of the support for the Task Force in general, and this report in particular. We thank Leonardo Burlamaqui for his encouragement and support of this entire project. This report was also substantially funded by BU’s Center for Finance, Law & Policy, and we thank its director, Cornelius Hurley.

This report could not be possible without the hard work of a number of other people as well. We thank Victoria Puyat, GEGI communications fellow Jill Richardson, Sarah McGeever, and Yuan Tian for their help and assistance putting together a day-long workshop at Boston University where the Task Force members met and presented earlier drafts of their essays. We thank Gregory Chinn from York University for participating in and facilitating parts of that workshop and Boston University colleagues Cornel Ban, Joseph Fewsmith, and Min Ye for attending parts of the workshop and making very useful contributions.

Pardee Center Associate Director Cynthia Barakatt led the not-so-easy task of editing and producing the report. She was aided by Leeann Sullivan and Chantel Pheiffer in the preparation of the manuscript of the report. We thank Jill Richardson for the promotional and communications effort to get the report into the hands of the proper audiences.

The Task Force would also like to thank and acknowledge Pardee Center Director Anthony Janetos for convening the workshop that led to this report and for his Center’s continued support of GEGI.