Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278739 
Year of Publication: 
2023
Series/Report no.: 
BOFIT Discussion Papers No. 5/2023
Publisher: 
Bank of Finland, Bank of Finland Institute for Emerging Economies (BOFIT), Helsinki
Abstract: 
This paper provides a brief overview of China's capital controls, external asset holdings and the real interest rate, and analyzes the quantitative effects of China's macroeconomic policies between 2000 and 2015, including capital controls, interest rate policy, exchange rate policy and fiscal policy, on the dynamics of China's trade balance vis-a-vis the United States and the world real interest rate. In my analysis, I take into account the demographic differences between the countries, which affect the external imbalances directly and indirectly by affecting the transmission of the macroeconomic policies. Capital controls in China remain stringent even though they have somewhat eased in 2010s, and its gross external asset holdings differ from its peer countries both in terms of the largest functional categories and by type of investment. The average interest rate spread with the US has narrowed down. According to my analysis, the macroeconomic policies overall, and mainly the undervaluation of the real exchange rate, have had a positive impact on China's trade balance. The impact of the macroeconomic policies on the real interest rate has been positive, countering the negative trend induced by demographic factors.
Subjects: 
capital controls
capital flows
China
JEL: 
F21
F41
F42
G28
ISBN: 
978-952-323-447-5
Document Type: 
Working Paper

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