This year China’s gross national savings will be close to $5tn. US savings will be only $3tn. If, as planned, China were to open its capital account – allowing foreigners to invest in China and the Chinese to invest abroad – the scale of its savings would surely reshape global finance. Done well, liberalisation would bring huge changes. Done badly, it could shake the foundations of already fragile global finance.
China’s closed capital account brings an important benefit both to the country itself and to the world. It makes it relatively simple for Beijing to manage domestic financial shocks. A severe and unexpected Chinese slowdown would be a big event but at least the spillover to the financial systems of the rest of the world would be relatively minor.
If the capital account were to be opened, that would change: any crises might become more difficult to manage and their impact on the rest of the world’s financial system would also be far greater. If, in the long run, Chinese entities became the world’s largest owners of financial assets, any big shock within China would become a global event, just as the Great Depression of the 1930s and the Great Recession of the 2000s in the US shook the world economy.