Financial Integration and China’s Growth Surge

China’s financial openness, as measured by cross-border flows and asset ownership, peaked during its 2000s growth surge, as did downward pressure on global interest rates and price levels. This was despite China’s restriction of financial inflows to approved FDI and tight controls on private outflows. We therefore consider two different types of financial integration. The first, Type 1, reflects the scale of cross-border flows as proportions of domestic saving or investment. The second, Type 2, indicates the weakness of capital controls and, in particular, the ease of rebalancing the Chinese collective portfolio away from official foreign reserves and across foreign regions. China’s growth surge contributed substantially to the integration of Type 1 but not Type 2. Results from global modelling are summarized showing that, with more Type 2 integration, surge effects within China would have been substantially smaller, while the global impacts on yields and inflation would have been larger.