Lanterna Rally

Author: Yu Wai Li

Publisher:

Published: 2013

Total Pages: 435

ISBN-13:

What explains the changing and sometimes conflicting policy tendencies and opening outcomes of China's financial opening? Despite much pro-opening official rhetoric, liberalizing initiatives are often delayed and suspended, while some experience occasional tinkering and even reversal. These dynamics can be seen in three cases of China's financial opening over the last decade. Outbound portfolio investment and securities issuance by foreign companies continue to meet substantial policy barriers. Renminbi internationalization, on the other hand, progresses unevenly with remarkable advances in trade settlement and offshore bond issuance, but much less on development of financial products. To make sense of this puzzle, this study argues that different policy tendencies (reversal, adherence to the status quo, and opening) result from the interplay between the opening advocates and dissenting parties in policy making. Financial opening is not only driven by central bureaucratic actors as most studies argue, but also by financial interests and the local authorities of financial centers acting in concert as pro-opening coalitions/groupings. Motivated by anticipated material gains and political interests, the local and financial constituents shape policy agendas and priorities, defining and framing liberalizing initiatives in ways that appeal to bureaucratic entities. They also seek wider political support by capitalizing on connections with the top decision elites. To allay opposition and maintain political and technical consensus, the opening advocates offer concessions to dissenting parties over implementation specifics like scope, pace, location, and/or technical standards and arrangements. This, however, does not always succeed. Dissenting parties who recognize adverse distributional and policy risk implications of the opening initiatives might be disinclined to accept the concessionary offers. These result in policy tendencies other than opening. This argument contributes to the scholarship on international and Chinese political economy in three major ways. First, for IPE literature, it presents a systematic exposition of an empirically significant country case of financial opening, covering various facets of this process that are usually examined in isolation in the literature. Second, for scholarship on Chinese political economy, it affirms the importance of local authorities and financial interests and demonstrates the increasingly pluralistic nature of financial policy making in China beyond the central bureaucracy. Third, for both sets of literatures, the domestic origin and dynamics of Chinese policy change point to the political economic constraints on liberalization at home, shedding light on the recent debate about the country's international financial outreach and power.