2014.04.09 by Martin Wolf
PBOC proposed dividing the task into three
periods
1)
In the first three years,
controls on foreign direct investment by enterprises would be relaxed
2)
Over three to five years, the
aim would be to relax controls on trade related credit and spur
internationalism of renminbi.
3)
Over five to 10 years, the plan
was to open up capital inflows before outflows
4)
PBOC planned to leave personal
transactions, money-market instruments and derivative to the end.
Advantage
1)
It could prove to be a sharp
spur to domestic reform
2)
China’s huge savings are now
locked up inside China.
3)
At $3.8tn last December. It
would be far better if some of this were converted into real assets.
Risky
1)
Very large increase in gross
flows(and so Stocks) would follow on both sides of the balance sheet.
2)
If the system being opened up
is riddled with price distortions and suffered with moral hazard, the chance of
mishap are great.
3)
If the regulators are operating
in an unfamiliar environment, as would be the case in China, the chances become
greater still.
4)
If the debt to GDP ratio is
also very high, the chances become even greater.
5)
This is a matter of global
concern when the economy in question will be the world’s largest
Wolf’s thought
-
China needs to reform first and
only then open up, ideally in close dialogue with its partners.
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