Center for American Progress

RELEASE: Prospects and Pitfalls in Beijing: New CAP Report Examines Challenges Facing China as It Pursues Financial Reform
Press Release

RELEASE: Prospects and Pitfalls in Beijing: New CAP Report Examines Challenges Facing China as It Pursues Financial Reform

Washington, D.C. — As China pursues new economic reforms, a new Center for American Progress report examines the myriad challenges the nation faces–challenges that create obstacles to achieving the country’s goals of creating a decisive role for the market and bringing about meaningful economic rebalancing.

The report surveys China’s ambitious and unfolding agenda for financial reform and details reforms that China’s leaders can adapt that will affect genuine change in the country’s distorted financial system and rebalance its currently state-led economy. These recommendations include building China’s foundation for inclusive growth, prioritizing corporate governance reform, rebalancing global exchange rates, and setting a high standard for China’s reform efforts and global commercial norms.

“Capital account opening and interest rate and exchange rate liberalization alone will not lead to the market-based financial system or the economic rebalancing that China’s leaders ​want. Given the tremendous role China plays in the global economy, getting financial reform right is extraordinarily critical to the country’s and to the world’s economic future,” said Adam Hersh, CAP Senior Economist and the author of the report.

​New analysis in the report finds that while China is advancing reforms on a number ​of ​​fronts, China’s currency, the renminbi, still remains more than 90 percent pegged to the U.S. dollar. Furthermore, more than 90 percent of capital raised in China’s emerging bond markets goes to state-owned enterprises.

As China pursues financial reforms that go beyond cosmetic changes, Hersh contends that the global economic community should focus on several specific outcomes indicative of meaningful change. These include:

  • Whether China’s financial system redirects new investment flows away from industries and localities already rife with overinvestment and high environmental costs toward productive, sustainable investment
  • Whether China’s financial system acts to expand credit to small and medium-sized enterprises
  • Whether regulators move to contain the risks of China’s too-big-to-fail, systemically important financial institutions
  • Whether China’s policymakers build social institutions that ease the financial squeeze on households, lowering savings and expanding domestic consumption

Click here to read “China’s Path to Financial Reform.”

For more information, please contact Allison Preiss at 202.481.6331 or [email protected].