China's experience in capital account liberalization through investment programs

Relevance. The Chinese economy is not only one of the largest economies in the world, but also a country that has shown high GDP growth rates over the past 10 years. After opening the capital account, foreign investment became the basis of the economy. Despite several global periods of turbulence, China has been able to accumulate significant experience in stimulating the inflow of long-term financial flows. This was made possible by extensive government programs aimed at both portfolio investment and FDI.

Objective. Study the practice and results of using various foreign investment stimulation programs.

Methodology. The main methods were systemic and historical approaches, with the use of which it was possible to establish patterns and highlight the distinctive features of investment programs.

Findings. Since Chinese economy’s growth required creation and development of entire industries in  a short period of time, FDI became a priority. With achieving net recipient of investments status, along with  the accumulation of the best industry practices, local national manufacturers developed significantly. This  became especially important in the transition to a growth model based on domestic demand. To deepen  the financial markets, special portfolio investment programs were introduced. The presence of strict controls over the movement of various types of capital made it possible, on the one hand, to reduce the inflow and outflow of speculative capital, but on the other hand, bureaucratic procedures and the need for approvals undermined the growth and development of competition. The gradual liberalization of controls, the development of investment schemes and the arrival of investors have made it possible to significantly improve the quality of the functioning of the stock market, and currency repatriation rules allow flexible management of exchange rate pressures. All this was embodied in a stable inflow of investments and low risks of a sudden outflows, which was illustrated trade wars and the pandemic.

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