Abstract: This chapter examines both price and flow evidence to determine how effective China's capital controls have been in the past and remain at present. Section 12.2 describes the increasing openness of the Chinese economy to cross-border flows as background for both price and flow analysis. Section 12.3 reviews and updates the price evidence that capital controls are still binding. Section 12.4 examines the gap between renminbi and US dollar short-term interest rates during the period of de facto dollar pegging of the renminbi between the mid-1990s and July 2005, arguing that these rates converged soon after China's inflation had fallen from double-digit levels in the early 1990s. Section 12.5 demonstrates the responsiveness of various measures of capital flows to interest-rate differentials and exchange-rate expectations. Section 12.6 discusses challenges to China's capital account liberalization.

Keywords: China, capital controls, cross-border flows, renminbi, short-term interest rates, monetary policy,