Working Paper: NBER ID: w20901
Authors: Daqing Yao; John Whalley
Abstract: In this paper we present evidence as to the effects of the China (Shanghai) Pilot Free Trade Zone (SPFTZ) on China’s capital controls. The start of the SPFTZ in September, 2013 was a trial to introduce a combination of exchange rate floating and capital account liberalization into China’s macro policy mix. We employ three methods to test the SPFTZ’s impact on capital controls: price spread tests between CNH and CNY, RMB yield gaps between onshore and offshore RMB markets, and Granger causalities among China’s money supply and the foreign interest rates. All these tests give consistent results suggesting that the impact of China’s capital controls is weaker since the SPFTZ.
Keywords: China; Shanghai Pilot Free Trade Zone; Capital Controls; Economic Reform; Internationalization
JEL Codes: F38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of the SPFTZ (Y20) | increase in capital flows (F32) |
| decrease in price spread (D41) | reduced capital control effectiveness (F32) |
| introduction of the SPFTZ (Y20) | decrease in yield gap (Q11) |
| change in relationship between China's money supply and foreign interest rates (E49) | increase in capital flows (F32) |