Edited by Ka Zeng
Chapter 14: The domestic politics of China’s exchange rate policy
This chapter examines China’s decision-making process over the exchange rate issue through a review of the evolution of Beijing’s exchange rate policy over the past 30 years. Case studies of three major reform episodes highlight the importance of domestic factors, in particular bureaucratic politics, interest groups, and top leaders’ preferences, in influencing China’s exchange rate policy. Bureaucratic politics represents the mainstream forces in China’s exchange rate policy. Interest groups played a decisive role in pushing the top leaders to make decisions in their favour at the proper time. The top leaders’ extreme risk aversion in crucial decision making determined the timing, scale, and significance of the final output of China’s exchange rate policy.
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