CONFIDENTIAL # 3
CRC INF 14/87
(CEC 8/87)
Introduction
China's foreign exchange control
and its external sector balance
Foreign exchange control is usually regarded by
policy-makers in China as an absolute requirement, on the presumption that the Chinese economy could not survive if it were deprived of the protection offered by such control. Many Chinese leaders and economists are probably aware of the shortcomings and inefficiencies associated with foreign exchange control, but none of them would risk
making the Renminbi a freely convertible currency, in view of the profound impact this could have on China's socialist economic system. This paper examines China's foreign exchange controls, its external sector balance and their implications for the Hong Kong economy.
China's foreign exchange control
2.
(i) Background
Ever since the establishment of the People's
Republic of China (PRC) in 1949, foreign exchange earnings
and expenditures have been put under centralised state
control. Apart from being a key feature of any centrally planned economy, this tight foreign exchange control was a consequence of the painful experience of unrestrained monetary expansion, hyper-inflation and rapid currency
G.F. 326...
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