Managing Capital Flows: The Case of the People’s Republic of China

The relatively successful management of cross-border capital flows has enabled the Peoples Republic of China (PRC) to achieve an extremely high average growth rate of more than 10 percent while keeping inflation under control. The management of cross-border capital flows is an indispensable element of macroeconomic stability. In order to cool down the overheating economy, the PRC government will continue to implement a tight monetary policy. In the face of possible further cuts in US interest rates, the PRCs monetary tightening is becoming increasingly difficult. Hence, the PRC must maintain capital controls whenever possible, and improve its management of cross-border capital flows, to enable the Peoples Bank of China (PBOC) to implement an independent monetary policy to sustain the economys growth into the next decade.