Loosening restrictions on international flows, if managed well and at the right time, could help China’s transition. 18 Liberalizing the capital account would help to complete markets and expand access to market financing within China. That said, liberalizing the capital account is one of the most difficult challenges that developing economies face.
Take the Asian Crisis as an example: countries liberalized their capital accounts before their financial systems were ready and suffered a currency crisis in 1997 that set their development back a few years. One of the lessons is the need for welldeveloped and resilient financial markets to allow for the pricing of risks and to accommodate large financial flows.