China’s Evolving Financial Regulation in the Shadow of the US

Certain complaints have emerged in relation to foreign entities accessing their assets in China. Barriers to immediate access come under two categories: anti-money laundering compliance and foreign exchange compliance. However, despite widespread concerns about exchange (or capital) control, many countries engage in practices that fall within its scope.

The State Administration of Foreign Exchange (SAFE) is the Chinese office responsible for foreign exchange matters, and appreciating its role and functions is essential in understanding how China’s financial system works and how China will influence the global economic system in years to come.

The complaints in relation to accessing assets located in China highlights an important distinction between current account and capital account assets. China does not impose restrictions on the making of payments and transfers for current international transactions. However, China has resisted the call to liberalise the capital account. It has done so in large part to protect itself from the external effects of the actions of big players in the global financial system. However, the growth of the renminbi as an international currency will likely answer questions as to when China will liberalise its capital accounts.