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.

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.

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.

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.