Review Of Interest Theories And The Transition Of China Interest System During Reform

To be controlled or liberalized is always the main point of interest theories. There is a hot debate between Classicalism Keynesianism Financial Restrain& Financial Deepening Theory and Neo-Keynesianism in the last century. Through an in-depth analysis, we can find that the different theories are logically consistent, even the standpoints of them are totally different. The key point is the level of interest rate. The dispute originated from the un-linear relationship between interest rate level and economy growth and the different research angles and methodologies. The Keynesians believe that the high interest rate, which was caused by liberalization, blocks the growth of investment and output. On the contrary, the classicists think that the low interest rate, which was controlled by government, decrease the quality of investment and then depress economy growth.This thesis discusses the influences of interest rate on investment and output from the macro level and analyses the behavior of financial enterprises from the micro level. As the result, it is not certain that the controlled interest rate would depress economy growth and the liberalized interest rate would improve efficiency. Whether the level of real interest rate is higher or lower is relative to the interest rate level that is fit for the highest growth speed of a country's economy. The proper level of interest rate and interest system that agree with the economy growth is affected by other factors, such as economy system and history.So the thesis discusses the circumstance of China interest system from the historical point of view. By the review of China interest system history, we cansee that the low level of interest rate is determined by the Chinese economic development and maintains stable during the gradual reform process. Before and at the beginning of the reform, the old interest system didn't incur too much efficiency losing. But, as the deepening of economic reform and the joining to the WTO, the efficiency loss caused by the old interest system is increasing. It is necessary to prompt interest system reform. However, even it's urgent, the actual situation in China has not been sufficient to do so. If we carry out the reform hastily, it will lead to the deficit of national enterprises, bankruptcy of finical corporations and the failure of macroeconomic policy. Therefore, the central work what we should do by now is to optimize the level and structure of interest rate, to develop finical system, to strengthen finical inspect and to create conditions for the gradual development of interest system reform.