China's State-Permeated Market economy and Its Constraints to the Internationalization of the Renminbi


Year of publication: 2015
Author(s): Mattias Vermeiren, Miguel Otero-Iglesias
Appeared in: International Politics, vol.: 52, issue: 6


The domestic institutions of China’s state-permeated market economy (SPME) have been conducive to the consolidation of an investment- and export-led growth model that has transformed China from a low- to middle-income country. Since the global financial crisis Chinese authorities have become increasingly disposed to internationalizing the renminbi to address the external monetary vulnerabilities arising from their economy’s excessive dependency on the dollar. We adopt a comparative capitalism perspective to argue that China’s international monetary ambition is incompatible with the domestic financial institutions of its SME and growth model. The success of RMB internationalization hinges on the implementation of far-reaching domestic institutional reforms that would overhaul the key domestic financial institutions of its SME. Based on a comprehensive analysis of the complementarities between these institutions and their role in China’s SPME and growth model, it is argued that the political capacity and resolve of the Chinese government to adopt these reforms can be called into question.