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China's WTO Accession as a Catalyst for Capital Account Liberalization
By Fred Hu
Introduction
The Asian financial crisis has led to questioning, in both academic and policy circles, concerning the wisdom of permitting free crossborder capital movements. Paul Krugman (1998a, 1998b) and Joseph Stiglitz (1998), for example, have both argued that unrestrained and volatile capital flows were the main factor in triggering and prolonging the 1997-98 Asian crisis. That crisis and subsequent debate evidently have had an impact on the thinking of Chinese policymakers. Not only has the official goal, established in the mid-1990s, of substantially abolishing exchange and capital controls by 2000 been quietly abandoned, the Chinese government has since been reticent about the whole issue of capital account convertibility. Many analysts have concluded that China has indefinitely postponed capital account liberalization.
This paper argues that, despite the absence of a publicly announced timetable, full capital account convertibility will take place within five years. The key catalyst for this accelerated transition to free capital mobility is China's imminent accession to the World Trade Organization.
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