Capital Account Liberalization and International Corporate Bond Issuance:Transaction-level Evidence from China

This paper provides transaction-level evidence about the impact of capital account liberalization on firms'bond issuance in the international financial market.Using bond issuance data for firms headquartered in China between 2014 and 2018,we showed that domestic private firms issued more bonds abroad than foreign-invested enterprises afier restrictions were largely relaxed,controlling for possible confounding shocks such as monetary policy,local credit market shocks,US interest rate,carry trade,and global uncertainty shocks measured by the Chicago Board Option Exchange's Volatility Index.We found that domestic firms did not increase the overall volume of bond issuance but just had a higher portion of international bond issuance.We also found that domestic firms with higher tangible asset ratios tended to issue more bonds abroad.Our results suggest that targeted liberalization policy could effectively stimulate firms to issue bonds abroad.Policymakers need to monitor closely firms that issue more bonds abroad and thus have greater exposure to global shocks,incorporate these financial risks into policy design,and safeguard financial stability more effectively.

How would Capital Account Liberalization Affect China's Capital Flows and the Renminbi Real Exchange Rates?

In this paper we study the determinants of gross capital flows, project the size of China＇s international investment position in 2020, and analyze the implications for the renminbi real exchange rate if China liberalizes the capital account. We assume in this exercise that the renminbi will have largely achieved capital account convertibility by the end of the current decade, a timetable consistent with recent proposals by the People ＇s Bank of China. Our analysis shows that if the capital account were liberalized, China＇s gross international investment position would grow significantly, and inflows and outflows would become much more balanced. The private sector would turn its net liability position into a balanced position, and the official sector would reduce its net asset position significantly, relative to the country ＇s GDP. Because of the increasing importance of private sector foreign claims and the decreasing importance of official foreign reserves, China would be able to earn higher net investment income from abroad. Overall, China would continue to be a net creditor, with the net foreign asset position as a share of GDP remaining largely stable through this decade. These findings suggest that the renminbi real exchange rate would not be particularly sensitive to capital account liberalization as capital flows are expected to be two-sided. The renminb i real exchange rate would likely be on a path of moderate appreciation as China is expected to maintain a sizeable growth differential with its trading partners.

Natural capital accounting perspectives:a pragmatic way forward

Introduction:Recent debates surrounding the application of natural capital accounting(NCA)have produced several approaches to further develop this system,as well as highlighted a number of conceptual and methodological issues that need to be resolved before mainstreaming NCA into policy and decision making.We argue that prolonged debate over the value concepts(i.e.,exchange versus other values)underpinning different modifications to NCA has slowed progress in experimentation and uptake by policymakers.Outcomes:Consequently we propose three broad approaches which can be progressed in parallel to reinvigorate experimentation with the NCA principles and practice,while at the same time generating policy relevant tools and evidence bases for decision support.The three approaches are;extended SNA accounting anchored to the use of exchange values;a complementary accounts network(CAN)that utilizes plural values as supplementary accounts to the SNA system;and wealth accounting that focuses on measures of welfare and wellbeing.The three approaches are complementary and data developed in any one can inform the other two.Conclusions:We contend that CAN offers the most flexibility and opportunities to progress short term support for decision making on environmental issues which are now becoming urgent.

Capturing the value of biosurveillance“big data”through natural capital accounting

Global biodiversity is in crises.Recognition of the scale and pace of biodiversity loss is leading to rapid technological development in biodiversity science to identify species,their interactions,and eco-system dynamics.National and international policy developments to stimulate mitigation and remediation actions are escalating to meet the biodiversity crises.They can take advantage of biosurveil-lance“big data”as evidence for more sweeping and impactful policy measures.The critical factor is translating biosurveillance data into the value-based frameworks underpinning new policy measures.An approach to this integration process,using natural capital accounting frameworks is developed.

Natural capital accounting in Xi＇an City of western China during 1995-2011

As one of the most important metropolitan areas in China, Xi＇an City plays a leading role in the development of the western regions. To impede the decision and policy prefer- ences for environmental and ecological factors, this paper took account of the natural capital depletion of Xi＇an City during 1995-2011, considered in terms of constant 1990 price levels. The results are as follows. （1） Natural capital depletion in Xi＇an City consistently increased from1995 to 2011, increasing from 14.31x108 yuan to 42.28x108 yuan, with an average an- nual growth rate of 12.22%. The primary component of natural capital depletion in Xi＇an City was the cost associated with fossil fuel resource depletion, while the cost associated with ecological services contributed the least to the total cost. （2） During 1995-2011, the proportion of natural capital depletion to Xi＇an City in Yanta and Lianhu districts dropped, whereas in counties such as Gaoling County, Chang＇an District and Lintong District, it increased. In 2011, the proportion of natural capital depletion varied between the different counties： Yanta District （15.75%）, Weiyang District and Lianhu District （10%-15%）, Huxian County, Xincheng District, Beiling District, Chang＇an District, Baqiao District, and Gaoling County （5%-10%）, and in Lintong District, Lantian County, Zhouzhi County and Yanliang District, it was 〈5%. （3） The spatial pattern of natural capital depletion varied with different perspectives, for example, from a total value perspective, a nuclear pattern around the administrative center of Xi＇an City was evident, whereas from a density per capita of natural capital depletion perspective, a bi-nuclear spatial distribution visible in 1995 had become a poly-nuclear distribution by 2011. Conversely, from a density per hectare perspective, a ＂core-edge＂ pattern characterized by three circles was observed. （4） The natural capital depletion relative to GDP curve was in accordance with the environmental Kuznets curve, while the proportion of natural capital de- pletion to GDP was the highest in circle III and the lowest in circle I.

The Growth Effect of Capital Account Opening

Based on global data of 144 countries,this paper uses a panel data model to analyze the growth effect of capital-account opening.Furthermore,through the comparison of regressions of different income level,this paper also discusses the threshold effect and mechanism of capital-account opening.The empirical results show that,in the case of complete sample,capital-account opening has a negative effect on economic growth.However,according to the regressions of different income level,the income of 4500 dollar can be viewed as a dividing line,above which,capital-account opening does have a positive effect on economic growth.Furthermore,the results also imply that,it is through capital accumulation and deepening that capital-account opening influences economic growth.

Balancing Capital Account Convertibility and Forex Market Stability

China is continuing to push forward its foreign exchange (forex) reform at a steady pace, giving global investors wider access to one of the world’s largest capital markets.The latest data showed that some 286 overseas institutions had received quotas amounting to $100.56 billion by the end of November under China’s Qualified Foreign Institutional Investor (QFII) program, a scheme that allows more convenient capital inflows.

Assessing China’s recent capital outflows:Policy challenges and implications

China has experienced a dramatic swing from net capital inflows to large net outflows in recent years.The recent capital exodus to some extent reflects policy difficulties and obstacles that China’s authorities face in managing economic reforms.In particular,China faces tough challenges in balancing the benefit/risk trade-off from capital account opening and attempting to introduce more flexibility to the currency.Moreover,the lack of policy clarity highlights policy inconsistencies and ambiguities among Chinese leaders in macroeconomic management,as more often than not,government policies seem to alternate between emphasizing reform and growth.This may cast doubt on the Chinese leadership’s commitment to reform,undermine confidence in the economy and cause further capital outflows that will have significant repercussions both for China as well as for the world.

Vanishing of China＇s Twin Surpluses and Its Policy Implications

This paper argues that the twin surpluses in China＇s balance of payments will disappear in the future as a result of external and internal structural changes. China＇s current account surplus will diminish as a result of the decline in the goods trade surplus, the expanding service trade deficit and negative investment income. China＇s capital account might shift from surplus to deficit as a result of shrinking net direct investment inflows and more volatile short-term capital flows. When the twin surpluses no longer exist, the normalization of the US treasury bond yields will be sped up, terminating the one-way appreciation of the RMB exchange rate; the People＇s Bank of China＇s pressure to sterilize inflows will be alleviated, and new problems for the People＇s Bank of China＇s monetary operation will emerge; new financial vulnerabilities for the Chinese economy will arise. Finally, the present paper provides some policy suggestions for the Chinese Government to deal with the declining twin surpluses.

Robust Monetary Framework for China

China faces rising current account surpluses and foreign reserves. Maintaining the fixed exchange rate runs the risk of overheating of the economy. It is desirable to pursue greater flexibility of the exchange rate regime in the short run, and gradual liberalization of capital account transactions in the medium run. Proper sequencing of various steps is recommended to prevent financial crises. Japan＇s transition from the dollar peg to a more flexible exchange rate system in 1971-1973 is considered to be a mistake, whereas the gradual capital account opening from the mid-1970s to mid-1990s is considered a success. The present study also analyzes Korea＇s mistake in opening its capital markets too far ahead of exchange rate flexibility, and liberalizing short-term capital rather than long-term capital. The challenge before China is similar to Japan＇s of 1969-1970, in the sense that the transition from the dollar peg is inevitable and desirable for the country, but decisive actions with proper sequencing are important.

How Did China Maintain Macroeconomic Stability During 1978-2018?

In this paper,we analyze the role of macroeconomic management in developing countries'economic take-off and structural transformation.We argue that developing countries face three leading challenges:market immaturity,lack of a developed financial system,and severe information asymmetry between international investors and domestic players.If not properly dealt with,these challenges can lead to macroeconomic volatility and fragility in economic development.Therefore,the government must intervene appropriately to address these challenges.By analyzing China s experiences in the era of reform and opening up(1978-2018),we find three important lessons:(i)It is important for the government to facilitate the entry and exit of enterprises in macroeconomic cycles,relying not only on market signals but also on administrative orders and measures of institutional reform;(ii)Financial reforms should be implemented in order to promote financial deepening and channel savings into investment;and(iii)The government should carefully manage capital account liberalization in order to preserve financial stability while promoting foreign investment,international trade,and industrial upgrading.

Can the Chinese domestic bond and stock markets facilitate a globalising renminbi?

A global renminbi(RMB)needs to be backed by a large,deep and liquid RMB market with a world-class Chinese government bond(CGB)market as its core.It also needs the support from a bigger and more open domestic stock market.China’s CGB market is the sixth largest local currency sovereign bond market in the world.By transforming the non-tradable,captive central bank liabilities into homogeneous and tradable CGBs through cutting the still high Chinese reserve requirements by 1/3,the size of the CGB market can rise by 40%,boosting market liquidity while trimming distortions to the banking system.Also,policy bank bonds may attract foreign investor demand.Finally,a bigger and more open domestic A-share stock market also helps expand the RMB assets in the international investor portfolio.With both bigger bond and stock markets and their higher foreign ownerships following market opening,the combined sum of Chinese domestic bonds and A-shares held by foreign investors may increase five folds during 2018–2025,lifting the RMB asset position in global investor portfolios,facilitating a potential global RMB,while promoting a deeper and more efficient Chinese domestic capital market.This process of liberalising cross-border portfolio capital flows for non-resident investors may bring both risks and benefits to the Chinese economy.