An Evaluation of the Impact of the China (Shanghai) Pilot Free Trade Zone (SPFTZ)
In this paper we present evidence as to the effects of the China (Shanghai) Pilot Free Trade Zone (SPFTZ) on China’s capital controls. The start of the SPFTZ in September, 2013 was a trial to introduce a combination of exchange rate floating and capital account liberalization into China’s macro policy mix. We employ three methods to test the SPFTZ’s impact on capital controls: price spread tests between CNH and CNY, RMB yield gaps between onshore and offshore RMB markets, and Granger causalities among China’s money supply and the foreign interest rates. All these tests give consistent results suggesting that the impact of China’s capital controls is weaker since the SPFTZ.
We are grateful to the ORF (Ontario Research Fund) and CIGI (Centre for International Governance Innovation) for financial support. The first author also thanks to the SASS for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.