Britain has more at stake than many other countries from a relaxation of Chinese capital controls and must be ready to cope with a tidal wave of renminbi flows over the next decade, according to a Bank of England study.
The paper suggests that China’s external assets and liabilities could jump from less than 5 per cent of global GDP today to more than 30 per cent by 2025.
“If China does liberalise, few other events over the next decade are likely to have more impact,” said John Hooley, author of the paper entitled ‘Bringing down the Great Wall? Global implications of capital account liberalisation in China’.
Britain’s large and open financial system, combined with its fast-growing financial ties with China, means it is likely to be particularly affected by the expected further opening up of the Asian powerhouse to global financial markets.
Potential benefits include faster economic growth and more liquid capital markets but there is the risk that asset prices could inflate too quickly, the paper said.