Rethinking On The Process Of Capital Account Liberalization:Perspective Of Financial Stability

In the post-crisis era of intricacies of the world economy recovery, accompanied by the shift of large-scale cross-border capital flow from developed economies to emerging market economies, research on the complex relationship between capital account liberalization, financial instability and real economy variables, as well as how to form some portfolio strategies in order to grasp the appropriate financial liberalization process in order is particularly important to ensure that domestic macroeconomic stability and financial security for emerging markets (including China), following by the in-depth development of the global economic integration and financial liberalization.Based on previous reviews of effects of capital account liberalization on economic and financial stability, as well as the impacts of related factors on the capital account liberalization strategies, the article firstly focuses on theoretical discussions on the benefits of financial liberalization advocated in the "Washington Consensus", then tries to reveal the relationships between capital account liberalization and financial instability by the status quo of China’s liberalization analysis, we indicate that impacts of potential risks in the process of financial liberalization for developing economies, the benefits of capital account liberalization on economic growth and financial deepening may be subject to the domestic economic and financial instable factors, and the reformation of financial liberalization must be synchronized in the financial liberalization process, in order to avoid the exposure of potential financial risks.Following by establishing a systematic analysis framework including the capital account liberalization, financial stability, domestic saving rate, external debt, the status of compliance, public confidence on the financial system, financial deepening, as well as the degree of consumption inequality, we try to explore the possible relationship between the capital account liberalization and the real economy variables. By using panel data empirical research of emerging markets (including China), we try to clarify the pathway and mechanism of heterogeneity of capital account liberalization on financial stability within those economies at different stages of development, as well as explore how the monetary authorities take initiatives to adjust the combination of the open policies in the capital account open stage. The comprehensive results show that capital account liberalization will lead to the rise of the financial risk to some extent. The relative low saving rate and the deterioration of the external debt situation will exacerbate the financial risks. Furthermore, the improvement of financial deepening and the reduction of the consumption inequality, as well as the public confidence on the financial system will effectively enhance the financial stability in the process of openness and achieve a dominant priority strategy equilibrium. It is worth noting that, this paper presents the realistic demand to rethink the existing process of financial liberalization.Above all, the paper proposes series of policy recommendations on the appropriate financial liberalization process in order for China on macro-financial stability, which could be practical and operable in the new international financial situation of the post-crisis era.