China rewrites rulebook on capital flows after crisis lessons

(July 7): Since global capital was set free following the end of the Bretton Woods system in the 1970s, countries have struggled to tame the consequences of unbridled money flows without walling off their economies.

Now China is trying to crack that code by essentially establishing two separate checkpoints for flows: one for foreigners and one for residents. It’s a big difference from the all-in capital-account liberalisation that rich nations began embracing four decades ago and which later badly tripped up emerging markets -- as in the Asian financial crisis in the late 1990s.

China’s thinking is seen most clearly in the bond connect that opened July 3, which lets global investors buy Chinese bonds through Hong Kong, but as yet bars Chinese from buying in Hong Kong’s market. The Communist Party leadership has similarly taken a number of other steps to open markets to foreign participation, while steadily tightening supervision of what domestic actors can do to take money abroad.

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