This probably adds up to lower inflation for importers, which in turn should serve to keep interest rates down. The nation's two exchanges, in Shanghai and Shenzhen, offer different classes of shares for foreigners and locals, a fire wall to keep trading separate. As for convertibility, Xiao believes the ups and downs of exchanges outside China reinforce the view that it is too soon to open up. Convertibility must be stabilized. Meanwhile, the World Trade Organization beckons.
China is anxious to join, but that is unlikely as long as it restricts the free flow of capital.
Capital-account convertibility means foreigners are free to bring money into China and take it out without significant restrictions on exchanging renminbi in either direction. The whole idea of giving up authority over such conversions frightens China's leaders, which helps explain why they have been keen to stress stability and restraint. A similar effort to maintain constancy may explain why the official Chinese media turned Hong Kong's wild ride into a non-story. The conundrum is that China needs foreign capital. But the nation must attract a huge amount of investment from within and outside China to finance an SOE revival and avoid bankruptcies and unemployment.