On Reflection | China beware, the road to an open financial system is paved with Asian casualties
- From Japan’s burst bubble to Thailand’s battered baht, past attempts at financial liberalisation by Asian economies highlight the pitfalls ahead
- Beijing must learn from the region’s failures, or pay a heavy price
In November this year, the State Council of China released its “Opinions on Further Improving Work for the Utilisation of Foreign Capital”. The document includes 20 policy measures in four domains – deepening market opening, strengthening investment promotion, extending the reforms in investment facilitation, and protecting the legitimate rights and interests of foreign investors. These measures aim to create a fairer, more robust and transparent environment for foreign enterprises investing in China.
Compared to the opening up of its goods sector, China’s liberalisation of financial services has been tightly controlled. Its vast financial markets remain largely closed to foreign financial institutions. Contrary to what standard economics says, the history of developing countries in East Asia provides good reasons for the sort of financial repression, capital regulation, and cautious liberalisation that we have seen in China over the last few decades.
