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The Study on China's Capital Control Effectiveness

The convertible process of china\
Submitted On: 04-01-2010 | Views:	Article Tools:

The convertible process of china's capital account is with the economic and financial reform simultaneously. With the raising level of reform and openness,the domestic and external economy evironment is changing, which makes capital control system facing more pressure. The effectiveness of capital control is influenced consequencely. Therefor,keeping capital control to some extent,paying attention to the effectiveness in its converting process,adjusting capital control policies properly is worth to be focused on.This paper analyzes the effectiveness of china from the following three aspect. Firstly,capital flows and its structrue are considered. Then,the fluctuation of foreign exchange is studied. Thirly, the trend of RMB exchange rate pressure is included. The results show that, in the two special periods of financial crisis and expectation of PMB's appreciation, capital control didn't led capital flow,reduce fluctuation of foreign exchange,alleviate the pressure on RMB exchange rate as people's expectation.To illustrate the extent of capital control effectiveness directly,the Edwards-Khan model is employed for empirical analysis. The parameter reflects the effectiveness of capital control. Kalman filter is introduced to make danymic parameter estimation. The result shows the average level of capital control effctiveness is 0.4619,which is rather low. Danymic analysis tell that capital control effctiveness has the declining trendency from 1997 to 2007,especially in the two particular periods mentioned above,which is coincided with the former analysis.In the descending trend of capital control effectiveness, the government shall carry out policies such as improving supervising method and strengthening inpection to make capital control more effective;promoting the reform of interest rate and exchange rate and coordinating domestic and foreign economic policy to relieve capital control pressure;putting forward the convertability of capital account timely to make capital control more efficient.

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