2.7 Current situation of China's capital account openness

According to the Annual Report on Exchange Arrangements and Exchange Restrictions

(i.e.AREAER) issued by the IMF,transactions in capital account is divided into 40 sub—items in 11 items in seven categories,and the assessment of capital controls status in its member states are based on these 11 items(Table 2—10).

Source:Speech of “Questions about the necessity and effectiveness of capital account management” by Sun Lujun,deputy director of capital division,SAFE,August 28,2009.

Epstein and Schor (1992) first proposed that AREAER could be used to measure the degree of capital control,and Cottarelli and Giannini (1997) quantified capital controls information in AREAER as binary variables（注:It refers to a dummy variable which equals to 1 if there exists capital account control,0 otherwise.）,and used the arithmetic mean to calculate the capital account openness.Due to its roughness,the credibility of the conclusion was doubted by many.We now use the mainstream capital openness measure method,the four constraints（注:We use the following formula:open=p(i)/n.open denotes the degree of capital account openness,equals to a number between 0 and 1,a less value means a stricter capital account control.n denotes the number of capital transaction items concerned,hereby denotes the 40 sub—items, p(i) denotes openness degree of sub—item i ,if p(i) equals to 1,it means there is no constrain on this sub—item,if p(i) equals to 1/3,it means there is much restrain ,2/3 means a few constrain,0 means completely controlled,no transaction is allowed legally or practically.In addition,those sub—items contained but without much details in AREAER are assigned 1/2.）,to measure the degree of openness of China's nominal capital account.

From Table 2—11,we can know that China's capital account opening is very cautious,and among the 40 sub—items in capital account,there are four complete banned,and 10 with many restrictions,and 26 with a few restrictions.By expert scoring,the degree of openness of China's capital scored 0.504 5 in 2010,a medium level in the world.