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The Temptation of China’s Capital Account

BEIJING – Despite fluctuations, China’s overall economic growth has been stable over the last three decades, owing not only to the economy’s strong fundamentals, but also to the government’s successful management of cross-border capital flows.

Capital controls enabled China to emerge from the Asian financial crisis of 1997-1998 largely unscathed, even though its financial system was at least as fragile as those of the affected countries. The Asian financial crisis persuaded China’s leaders to shelve plans, launched in 1994, to liberalize the capital account.