A Study On Interest Rate Liberalization In China

The Second World War and the American Economic Crisis in 1930 s had brought a heavy blow to the global economy. The financial markets all over the world were in a mess and problems never stopped rising. The economic recession had a direct impact on the stability of politics. In order to stabilize the political situation and recover the economical construction, most of the countries had chosen the very strict financial regulation policy.In the 70 s of the last century, Mackinnon and Shaw’s "Financial Repression Theory" and "Financial Restraint Theory" pointed out that the strict control of finance from the government would benefit the economic development in a certain period of time but it would restrain the development in the long term. Therefore, people were encouraged to break the shackles and required to deepen the reform in financial field. Meanwhile, with the economic recovery in all countries and areas, especially with the rapid progress of global economic integration, the excessive intervention and the strict control of financial market from government could not adapt to the economic development trend and a lot of problems were showing up gradually. From 1980 s to 1990 s, the majority of countries and areas joined the reforms of interest rate liberalization and loosened the strict control of their financial markets. The trend of financial deregulation was spreading worldwide.As the core part of financial liberalization, all countries and areas paid high attention to the interest rate liberalization. Countries in different levels of economic development were trying hard to find their own paths to interest rate liberalization. But among many countries with reforms, some took measures to accelerate the development of their economy successfully while some became the examples for failure to transform according to unsuitable measures. For example, the reforms of interest rate liberalization in the US and Taiwan of China were the successful models. Under the strict control of financial market which could not adapt to the financial market development trend, the US and Taiwan of China suffered the deceleration of economy development. So the government in both areas took suitable measures to loosen the control to the interest rate market gradually as the general economic situation was stable. Finally they finished their goals of economic reforms, the interest rate liberalization successfully. On the contrary, the government of Chile started the reform of interest rate liberalization with the background of turbulence in politics and economy. At the same time, the government of Chile chose the radical reform mode which was out of the government’s control. In the end, the reform failed without any doubt. From these successful and failing cases, we learnt some experience as well as the lessons. We got to know that the interest rate liberalization could not be completed within one day. However, the reform should move forward step by step under the stable general political and economic situation with full consideration of politics and economy.From 1996, China started to explore our own ways to interest rate liberalization. Our government chose to start from the inter-bank market as the first step. Then the reform was implemented gradually to inter-bank bond market, bill market and deposit and loan interest rate market. Finally in 2013, the central bank decided not to control the minimum load interest which showed general completion of the interest rate liberalization reform in our country. However, we need to know that the general success of the reform had been slowed down by many problems in recent 10 years. Such as the shock to commercial banks due to the reform of interest rate liberalization gave the commercial banks a hard time to operate in a short term, the ability of pricing kept low after getting the power to price, the innovation competence was not enough and so on. Besides, China had a closer connection to other countries and played a more and more important role in international activities since we joined WTO. Though we had a significant performance and enhanced our international competitiveness in the worldwide market, we still face lots of challenges. With the rapid development of China’s economy, some countries and areas give us some barriers to a certain extent which obstructs the progress of our interest rate liberalization. Aiming at these influencing factors, our government is fearless to make various macroeconomic policies to regulate the financial market in order to face the international challenges positively and deepen our interest rate liberalization reform without any hesitation.Even though relieving the control of minimum load interest shows the general completion of our interest rate liberalization, the interest rate liberalization is still not finished. The full completion of interest rate liberalization keeps being the hardest part for reforms in all countries and areas, including China. Considering the further ways to our interest rate liberalization reform, we should learn lessons and the experience from other countries and areas. Also, we need to summarize our previous successful experience and learn from it. We need to be calm when we face problems and actively seek for the ways to solve them. Only in this way can we accelerate the progress of our interest rate liberalization under the stable macroeconomic background.