The Temptation of China s Capital Account

Spanish banks have 7 equity capital on average on their balance sheets.

1 This balance includes working capital reserve brought forward from 2002 2003.

Moreover, there must be greater balance between capital intensive and labor intensive activities.

An increase in gold imports placed further pressure on the current account balance.

This is why capital account regulations are allowed under IMF rules, and why the attempt to introduce capital account convertibility into the IMF s Articles of Agreement was defeated in 1997.

In this context, it shall take fully into account the consideration of regional balance.

Second, much will depend on how China navigates the transition to a more open capital account. History is littered with financial crises occurring in the wake of precipitous capital account liberalization.

As an immature debtor borrower, its trade balance and current account are also in deficit as a mature debtor borrower, its trade balance enters surplus and, as a debtor repayer, its current account moves to surplus.

Kaduang has posted an eyewitness account of yesterdays happening in capital Yangoon.

It is time to add managing the capital account to this list.

(iii) 25,395,513 dollars, being the balance in the surplus account as at 31 December 1999

(iii) 15,671,000 dollars, being the balance in the surplus account as at 31 December 2003

That could bring its current account into balance or even into slight deficit by 2015.

Moreover, capital importing developing countries faced a dilemma owing to macroeconomic constraints, especially balance of payments difficulties.

As an immature creditor lender, the trade balance and current account are in surplus as well as a mature creditor lender, the trade balance returns to deficit finally, as a creditor borrower, the country s current account swings into deficit.

The financing of the support account included the 13,790,000 excess balance of the Peacekeeping Reserve Fund.

It is hard to argue that the RMB is not undervalued, given China s large and persistent current account and capital account surpluses.

Reimbursement commitments are reflected in the account only to the extent of available funds with the outstanding balance indicated by a footnote to the account.

That would be very difficult to manage without some form of capital account regulation.

The fund balance at the end of 2004 is being estimated at 9.21 million, comprising an operating reserve balance of 6 million and a working capital of 3.21 million.

A country with current account and capital account surpluses and increasing foreign exchange reserves normally sees an excessive money supply and high inflation.

China has a two tier system in which the capital account is strictly controlled most other currencies don t distinguish between current and capital accounts.

History is littered with financial crises occurring in the wake of precipitous capital account liberalization.

A country that has a balanced current account does not need any additional foreign capital.

With current and capital account surpluses, the renminbi s exchange rate is still under upward pressure.

High world oil prices and capital inflows are strengthening the balance of payments and contributing to exchange rate appreciation.

The principles of North South balance and equitable geographical distribution should be taken into account in that process.

Second, much will depend on how China navigates the transition to a more open capital account.

A serious discussion of global capital account regulations would benefit both advanced and emerging market economies.

Progress in institution building is also important for a well sequenced liberalisation of the capital account.

A healthy state balance sheet could help, because part of the income flowing to capital would go to the state.

In fact, many emerging markets experienced declines in investment rates. Nor, on balance, has liberalization of capital flows stabilized consumption.

The international balance of payments remains in surplus, and there is still a net capital inflow despite the global credit crunch.

But whether renminbi appreciation will work depends on reducing China s net capital inflows and current account surplus.

NEW YORK Capital account regulations have been at the center of global financial debates for two years.

A much better way forward is to rethink seriously the role of cross border capital account regulations.

Doing so will require maintaining some capital account control, while raising interest rates to market clearing levels.

On April 1994, the capital was moved again to its present location on account of political considerations.

External trade and investment Foreign investment and balance of payments Foreign trade and balance of payments In 2001 the current account deficit dropped to about 2.2 of GDP (US 1.17 billion) from 3.1 in 2000 while the trade balance registered a small deficit.

As the crisis struck, capital flowed out of developing countries to shore up damaged balance sheets in advanced countries. Credit tightened sharply.

As such, the timing could not be worse to float the idea of speeding up capital account liberalization.

The Asian financial crisis persuaded China s leaders to shelve plans, launched in 1994, to liberalize the capital account.

Most economists in China seem to support the PBOC s stance, citing the potential benefits of capital account liberalization.

To be sure, a cautious approach should not be allowed to impede incremental progress toward capital account liberalization.