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Efficacy Of China'S Capital Controls: Evidence From Price And Flow Data

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  • Guonan Ma
  • Robert N McCauley

Abstract

. The paper argues that China's capital controls remain substantially binding. This has allowed the Chinese authorities to retain some degree of short‐term monetary autonomy, despite the fixed exchange rate to July 2005. Although the Chinese capital controls have not been watertight, we find sustained and significant gaps between onshore and offshore renminbi interest rates and persistent dollar/renminbi interest rate differentials during the period of a de facto dollar peg. While some cross‐border flows do respond to market expectations and relative yields, they have not been large enough to equalise onshore and offshore renminbi yields.

Suggested Citation

  • Guonan Ma & Robert N McCauley, 2008. "Efficacy Of China'S Capital Controls: Evidence From Price And Flow Data," Pacific Economic Review, Wiley Blackwell, vol. 13(1), pages 104-123, February.
    • Handle: RePEc:bla:pacecr:v:13:y:2008:i:1:p:104-123
    DOI: 10.1111/j.1468-0106.2007.00392.x
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    File URL: https://doi.org/10.1111/j.1468-0106.2007.00392.x
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    References listed on IDEAS

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    1. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2006. "The Chinese economies in global context: The integration process and its determinants," Journal of the Japanese and International Economies, Elsevier, vol. 20(1), pages 128-153, March.
    2. Robert N McCauley & YK Mo, 2000. "Foreign currency deposits of firms and individuals with banks in China," BIS Quarterly Review, Bank for International Settlements, August.
    3. Frankel, Jeffrey A, 1992. "Measuring International Capital Mobility: A Review," American Economic Review, American Economic Association, vol. 82(2), pages 197-202, May.
    4. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 421-480, National Bureau of Economic Research, Inc.
    5. Guonan Ma & Corrinne Ho & Robert N McCauley, 2004. "The markets for non-deliverable forwards in Asian currencies," BIS Quarterly Review, Bank for International Settlements, June.
    6. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 421-480, National Bureau of Economic Research, Inc.
    7. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    8. Frankel, Jeffrey, 2004. "On the Renminbi: The Choice between Adjustment under a Fixed Exchange Rate and Adustment under a Flexible Rate," Working Paper Series rwp04-037, Harvard University, John F. Kennedy School of Government.
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