International Politics

, Volume 52, Issue 6, pp 724–742 | Cite as

China’s capital controls: Between contender state and integration into the heartland

  • Sacha Dierckx
Original Article

Abstract

This article examines the foundations and evolution of China’s capital controls. It is argued that the continuation of stringent controls in the reality of worldwide liberalisation is the result of the hegemony of a historic bloc, comprising foreign industrial capital, Chinese state-owned industrial and banking capital, and a fraction of the state class that wants to keep control over China’s economy. However, despite the still extensive controls, significant capital account liberalisation has been carried out. The origins can be found in the strategy of a fraction of the state class which wants to transform China’s accumulation regime in order to form a challenge to US power. Support for this strategy is provided by Chinese technocrats, Chinese wealthy individuals and foreign financial capital. At the moment, it seems that these pro-liberalisation social forces are gaining the upper hand. This could ultimately lead to China’s full integration into the Western heartland.

Keywords

China capital controls liberalisation heartland contender state 

References

  1. Amin, S. (2013) China 2013. Monthly Review 64 (10): 14–33.CrossRefGoogle Scholar
  2. Arrighi, G. (2007) Adam Smith in Beijing: Lineages of the Twenty-First Century. London: Verso.Google Scholar
  3. Baek, S.W. (2005) Does China follow ‘the East Asian development model’? Journal of Contemporary Asia 35 (4): 485–498.CrossRefGoogle Scholar
  4. Borst, N. (2013) The Shanghai free trade zone’s financial firewall. China Economic Watch, 6 December, http://www.piie.com/blogs/china/?p=3593, accessed 8 December 2013.
  5. Bradsher, K. (2013) Wary of China, companies head to Cambodia. The New York Times, 8 April, http://www.nytimes.com/2013/04/09/business/global/wary-of-events-in-china-foreign-investors-head-to-cambodia.html, accessed 15 May 2013.
  6. Breslin, S. (2003) Reforming China’s embedded socialist compromise: China and the WTO. Global Change, Peace & Security 15 (3): 213–229.CrossRefGoogle Scholar
  7. Breslin, S. (2004) Globalization, international coalitions and domestic reform. Critical Asian Studies 36 (4): 657–675.CrossRefGoogle Scholar
  8. Breslin, S. (2005) Power and production: Rethinking China’s global economic role. Review of International Studies 31 (4): 735–753.CrossRefGoogle Scholar
  9. Breslin, S. (2011) China and the crisis: Global power, domestic caution and local initiative. Contemporary Politics 17 (2): 185–200.CrossRefGoogle Scholar
  10. Chancellor, E. (2011) China investors: Beware of inequality. Financial Times, 5 June, http://www.ft.com/intl/cms/s/0/b254e632-8e10-11e0-bee5-00144feab49a.html, accessed 9 June 2011.Google Scholar
  11. Chancellor, E. (2013) Too little Adam Smith for China, too late. Financial Times, 24 November, http://www.ft.com/intl/cms/s/0/0996e106-52b4-11e3-a73e-00144feabdc0.html, accessed 24 November 2013.Google Scholar
  12. Chen, L. (2013) China’s rebalancing, shadow banking and RMB internationalization in INET Hong Kong. Institute for New Economic Thinking, 8 April, http://ineteconomics.org/blog/china-seminar/chinas-rebalancing-shadow-banking-and-rmb-internationalization-inet-hong-kong, accessed 15 May 2013.
  13. Chen, X. and Cheung, Y. (2011) Renminbi going global. China & World Economy 19 (2): 1–18.CrossRefGoogle Scholar
  14. Cheng, Y. (2010) The Chinese model of development: An international perspective. Social Sciences in China XXXI (2): 44–59.Google Scholar
  15. Cheung, Y., Ma, G. and McCauley, R.N. (2011) Why does China attempt to internationalise the renminbi? In: J. Golley and L. Song (eds.) Rising China: Global Challenges and Opportunities. Canberra, Australia: ANU E Press, pp. 45–68.Google Scholar
  16. Chin, G.T. and Thakur, R. (2010) Will China change the rules of global order? The Washington Quarterly 33 (4): 119–138.CrossRefGoogle Scholar
  17. China-XBR (2014a) QDII total quota: USD82.493bn. China-XBR, 30 October, http://china-xbr.com/xbr-quota-data/qdii, accessed 29 November 2014.
  18. China-XBR (2014b) RQFII total quota: RMB278.6bn. China-XBR, 30 October, http://china-xbr.com/xbr-quota-data/rqfii, accessed 29 November 2014.
  19. Dean, J. (2000) Can China avert crisis? Challenge 43 (4): 62–76.CrossRefGoogle Scholar
  20. Dobson, W. and Masson, P.R. (2009) Will the renminbi become a world currency? China Economic Review 20 (1): 124–135.CrossRefGoogle Scholar
  21. Fischer, A.M. (2010) Is China turning Latin? China’s balancing act between power and dependence in the lead up to global crisis. Journal of International Development 22 (6): 739–757.CrossRefGoogle Scholar
  22. Fung, H. and Yau, J. (2012) Chinese offshore RMB currency and bond markets: The role of Hong Kong. China & World Economy 20 (3): 107–122.CrossRefGoogle Scholar
  23. Gao, H. and Yu, Y. (2009) Internationalisation of the renminbi. Basel, Switzerland: Bank for International Settlements. BIS Papers 61: 105–124.Google Scholar
  24. Garrett, B. (2001) China faces, debates, the contradictions of globalization. Asian Survey 43 (3): 409–427.CrossRefGoogle Scholar
  25. Gill, S. (2003) Power and Resistance in the New World Order. Basingstoke, UK: Palgrave Macmillan.Google Scholar
  26. Gill, S. and Law, D. (1989) Global hegemony and the structural power of capital. International Studies Quarterly 33 (4): 475–499.CrossRefGoogle Scholar
  27. Gindin, S. and Panitch, L. (2012) The Making of American Capitalism: The Political Economy of American Empire. London: Verso.Google Scholar
  28. Gray, K. (2010) Labour and the state in China’s passive revolution. Capital & Class 34 (3): 449–467.CrossRefGoogle Scholar
  29. Hansakul, S., Dyck, S. and Kern, S. (2009) China’s financial markets – A future global force? Frankfurt, Germany: Deutsche Bank. Deutsche Bank Current Issues, 16 March.Google Scholar
  30. Harmes, A. (2006) Neoliberalism and multilevel governance. Review of International Political Economy 13 (5): 725–749.CrossRefGoogle Scholar
  31. Harvey, D. (2005) A Brief History of Neoliberalism. Oxford: Oxford University Press.Google Scholar
  32. Hope, N. and Hu, F. (2006) Reforming China’s banking system: How much can foreign strategic investment help? In: J. Aziz, S. Dunaway and E.S. Prasad (eds.) China and India: Learning from Each Other: Reforms and Policies for Sustained Growth. Washington DC: International Monetary Fund, pp 33–83.Google Scholar
  33. HSBC (2011) China onshore and offshore RMB bond market – a foreign bank perspective. ASIFMA, 11 September, http://www.asifma.org/uploadedFiles/Resources/CSS-DavidLiao-HSBC-ChinaOnshoreandOffshoreRMBBondMarket-AForeignBankPerspective.pdf, accessed 24 April 2013.
  34. Hung, H. (2009) America’s head servant? The PRC’s dilemma in the global crisis. New Left Review 60: 5–25.Google Scholar
  35. Ikenberry, G.J. (2008) The rise of China and the future of the West: Can the liberal system survive? Foreign Affairs 87 (1): 23–37.Google Scholar
  36. Jayadev, A. (2010) Capital account openness and the labour share of income. Cambridge Journal of Economics 31 (3): 423–443.CrossRefGoogle Scholar
  37. Ji, B. (2011) SAFE denies increased cap on individual foreign exchange buys. People’s Daily Online, 16 March, http://english.people.com.cn/90001/90776/7322208.html, accessed 13 May 2013.
  38. Ji, C. and Thomas, S. (2005) China’s bond market matures, slowly. The China Business Review 32 (1): 30–33.Google Scholar
  39. Kotz, D. (2007) The state of official Marxism in China today. Monthly Review 59 (4): 58–64.CrossRefGoogle Scholar
  40. Lardy, N. and Douglass, P. (2011) Capital Account Liberalization and the Role of the Renminbi. Washington DC: Peterson Institute for International Economics. Working paper series 11-6.Google Scholar
  41. Laurenceson, J. and Chai, J.C.H. (2001) State banks and economic development in China. Journal of International Development 13 (2): 211–225.CrossRefGoogle Scholar
  42. Laurenceson, J. and Tang, K.T. (2005) Estimating China’s de-facto Capital Account Convertibility. Brisbane, Australia: The University of Queensland. East Asia Economic Research Group, Discussion paper no. 2.Google Scholar
  43. Li, F. and Zhou, X. (2013) PBOC will ‘basically’ end normal yuan intervention: Zhou. Bloomberg, 19 November, http://www.bloomberg.com/news/2013-11-19/pboc-will-basically-exit-normal-yuan-intervention-zhou-says.html, accessed 20 November 2013.
  44. Liang, Y. (2010) China and the global financial crisis: Assessing the impacts and policy responses. China & World Economy 18 (3): 56–72.CrossRefGoogle Scholar
  45. Liew, L.H. (2004) Policy elites in the political economy of China’s exchange rate policymaking. Journal of Contemporary China 13 (38): 21–51.CrossRefGoogle Scholar
  46. Lim, B.K. and Bi, V. (2013) China c. bank chief set to keep job in reshuffle – Sources. Reuters, 20 February, http://www.reuters.com/article/2013/02/20/china-centralbank-idUSL4N0BK2AT20130220, accessed 20 February 2013.
  47. Luo, C. and Jun, Z. (2010) Declining labor share: Is China’s case different. China & World Economy 18 (6): 1–18.CrossRefGoogle Scholar
  48. Ma, G. and McCauley, R.N. (2007) Do China’s Capital Controls Still Bind? Implications for Monetary Autonomy and Capital Liberalisation. Basel, Switzerland: Bank for International Settlements. BIS Working Papers no. 233.Google Scholar
  49. Ma, G. and McCauley, R.N. (2014) Financial Openness of China and India: Implications for Capital Account Liberalisation. Brussels, Belgium: Bruegel. Bruegel Working Paper 2014/05.Google Scholar
  50. Mallaby, S. and Wethington, O. (2012) The future of the yuan: China’s struggle to internationalize its currency. Foreign Affairs 91 (1): 135–146.Google Scholar
  51. McNally, C.A. (2012) Sino-capitalism: China’s reemergence and the international political economy. World Politics 64 (4): 741–776.CrossRefGoogle Scholar
  52. Morgan, J. (2004) Contemporary China, anachronistic Marxism? The continued explanatory power of Marxism. Critical Asian Studies 36 (1): 65–90.CrossRefGoogle Scholar
  53. Naughton, B. (2008) SASAC and rising corporate power in China. Stanford, CA: Stanford University. China Leadership Monitor no. 24.Google Scholar
  54. Nolan, P. (2011) Who are we? Who are they? The real facts of a globalized Chimerica. New Perspectives Quarterly 28 (3): 51–60.CrossRefGoogle Scholar
  55. Otero-Iglesias, M. and Vermeiren, M. (2015) China’s state-permeated market economy and its constraints to the internationalization of the renminbi. International Politics 52 (6): 684–703.CrossRefGoogle Scholar
  56. Overholt, W.H. (2010) China in the global financial crisis: Rising influence, rising challenges. The Washington Quarterly 33 (1): 21–34.CrossRefGoogle Scholar
  57. Palley, T.I. (2006) External contradictions of the Chinese development model: Export-led growth and the dangers of global economic contraction. Journal of Contemporary China 15 (46): 69–88.CrossRefGoogle Scholar
  58. PBOC (2008) China: The evolution of foreign exchange controls and the consequences of capital flows. Basel, Switzerland: Bank for International Settlements. BIS Papers 44: 143–151.Google Scholar
  59. van der Pijl, K. (1998) Transnational Classes and International Relations. London: Routledge.Google Scholar
  60. van der Pijl, K. (2008) China’s Challenge to the West in the 21st century. Brighton, UK: University of Sussex. CGPE Working Paper no. 1.Google Scholar
  61. van der Pijl, K. (2010) Western hegemony and transnational capital: A dialectical perspective. In: A. Anievas (ed.) Marxism and World Politics: Contesting Global Capitalism. London: Routledge, pp 42–60.Google Scholar
  62. van der Pijl, K. (2012) Is the east still red? The contender state and class struggles in China. Globalizations 9 (4): 503–516.CrossRefGoogle Scholar
  63. Prasad, E.S. (2009) Is the Chinese growth miracle built to last? China Economic Review 20 (1): 103–123.CrossRefGoogle Scholar
  64. Prasad, E.S. (2012) Right time for China to liberalise renminbi. Financial Times, 25 March, http://www.ft.com/intl/cms/s/411228ac-74fd-11e1-ab8b-00144feab49a.html, accessed 25 March 2012.Google Scholar
  65. Prasad, E.S., Rumbaugh, T. and Wang, Q. (2005) Putting the Cart before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China. Washington DC: International Monetary Fund. IMF Policy Discussion Paper no. PDP/05/1.Google Scholar
  66. Prudhomme, C. (2011) A Paris, la belle unite des banquiers centraux s’émousse vite. Le Monde, 20 February: n. p.Google Scholar
  67. Rabinovitch, S. (2012) China opens door to foreign hedge funds. Financial Times, 10 July, http://www.ft.com/intl/cms/s/0/77acb744-ca91-11e1-89be-00144feabdc0.html, accessed 11 July 2012.Google Scholar
  68. Reuters (2014) China outstanding QFII quota at $59.7 bln as of end-August. Reuters, 28 August, http://uk.reuters.com/article/2014/08/28/china-investment-qfii-idUKB9N0QQ00T20140828, accessed 2 September 2014.
  69. Rosen, D.H. and Hanemann, T. (2009) China’s Changing Outbound Foreign Direct Investment Profile: Drivers and Policy Implications. Washington DC: Peterson Institute for International Economics, Policy Brief PB0, pp. 9–14.Google Scholar
  70. Sender, H. (2012) China is outgrowing its financial system. Financial Times, 19 July, http://www.ft.com/intl/cms/s/0/66f2a4b4-d17f-11e1-bb82-00144feabdc0.html, accessed 21 July 2012.Google Scholar
  71. Sender, H. (2013) Chinese seek change as continuity rules. Financial Times, 19 March, http://www.ft.com/intl/cms/s/0/8107d8e6-90ac-11e2-a456-00144feabdc0.html, accessed 20 March 2013.Google Scholar
  72. Song, S. (2007) China’s QDII quota hits 42.17 bln USD by end of Sept. China View, 4 November, http://news.xinhuanet.com/english/2007-11/04/content_7009490.htm, accessed 26 April 2013.
  73. Strange, G. (2011) China’s post-Listian rise: Beyond radical globalization theory and the political economy of neoliberal hegemony. New Political Economy 16 (5): 539–559.CrossRefGoogle Scholar
  74. Straszheim, D.H. (2008) China rising. World Policy Journal 25 (3): 157–170.CrossRefGoogle Scholar
  75. Subramanian, A. (2011) The yuan: the proposer’s opening remarks. The Economist, 20 September, http://economist.com/debate/days/view/756, accessed 7 December 2011.
  76. SWIFT (2011) RMB internationalisation: Implications for the global financial industry. SWIFT, 23 January, http://www.swift.com/resources/documents/RMB_White_paper_internationalisation.pdf, accessed 19 September 2012.
  77. The Economist (2012) China’s capital controls: set the money free, 3 March: 14-18.Google Scholar
  78. Thomas, S. and Ji, C. (2006) Banking on reform. The China Business Review 33 (3): 20–26.Google Scholar
  79. Vermeiren, M. and Dierckx, S. (2012) Challenging global neoliberalism? The global political economy of China’s capital controls. Third World Quarterly 33 (9): 1647–1688.CrossRefGoogle Scholar
  80. Wang, H., Appelbaum, R.P., Degiuli, F. and Lichtenstein, N. (2009) China’s new labour contract law: Is China moving towards increased power for workers? Third World Quarterly 30 (3): 485–501.CrossRefGoogle Scholar
  81. Wang, Q.K. (2011) The rise of neoclassical economics and China’s WTO agreement with the United States in 1999. Journal of Contemporary China 20 (70): 449–465.CrossRefGoogle Scholar
  82. Wang, X. (2012) Full convertibility of the yuan ruled out. China Daily, 18 December, http://www.chinadaily.com.cn/china/2012-12/18/content_16027242.htm, accessed 21 January 2013.Google Scholar
  83. Wolf, M. (2012) China is right to open up slowly. Financial Times, 28 February, http://www.ft.com/intl/cms/s/0/a44d9cec-6163-11e1-94fa-00144feabdc0.html, accessed 29 February 2012.Google Scholar
  84. Wu, F. (2010) How neoliberal is China’s reform? The origins of change during transition. Eurasian Geography and Economics 52 (5): 619–631.CrossRefGoogle Scholar
  85. Wu, F., Pan, R. and Wang, D. (2010) Renminbi’s potential to become a global currency. China & World Economy 18 (1): 63–81.CrossRefGoogle Scholar
  86. Xinhua (2013) China raises QFII investment quota. China.org.cn, 13 July, http://www.china.org.cn/business/2013-07/13/content_29411337.htm, accessed 2 September 2014.
  87. Yam, J. (2011) A Safe Approach to Convertibility for the Renminbi. Hong Kong: The Chinese University of Hong Kong. Institute of Global Economics and Finance working paper no. 5.Google Scholar
  88. Yao, K. (2013) Analysis: China central bank takes lead in economic reform push. Reuters, 24 February, http://www.reuters.com/article/2013/02/24/us-china-economy-reform-idUSBRE91N0FR20130224, accessed 25 February 2013.
  89. Yao, K. (2014) Risk-averse China seen pushing back plans to free yuan. Reuters, 6 August, http://uk.reuters.com/article/2014/08/06/uk-china-economy-reform-idUKKBN0G62F520140806, accessed 19 September 2014.
  90. Zhang, M. (2012) Chinese stylized sterilization: the cost-sharing mechanism and financial repression. China & World Economy 20 (2): 41–58.CrossRefGoogle Scholar
  91. Zhou, X. (2004) Some issues concerning the reform of state-owned commercial banks. PBOC, 1 June, http://www.pbc.gov.cn/publish/english/956/1940/19407/19407_.html, accessed 21 October 2011.
  92. Zhou, X. (2005) China’s corporate bond market development: lessons learned. Basel, Switzerland: Bank for International Settlements. BIS Papers 26: 7–10.Google Scholar
  93. Zhu, A. and Kotz, D.M. (2011) The dependence of China’s economic growth on exports and investment. Review of Radical Political Economics 43 (1): 9–32.CrossRefGoogle Scholar

Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2015

Authors and Affiliations

  • Sacha Dierckx
    • 1
  1. 1.Department of Political Science – Ghent Institute for International StudiesGhent UniversityGentBelgium

Personalised recommendations