Optimal capital account liberalization in China

China maintains tight controls over its capital account. Its current policy regime also features financial repression, under which banks are required to extend funds state-owned enterprises (SOEs) at favorable terms, despite their lower average productivity than private firms. We incorporate these into a general equilibrium model. Our model illustrates tradeoff between aggregate and inter-temporal allocative efficiency from account liberalization repression. As result, along transition path with declining SOE share, welfare-maximizing calls for rapid removal of but gradual the