The Impact Of China's Interest Rate Liberalization On Financing Constraints Of SMEs

Although China's interest rate liberalization reform has achieved great results since it started in 1996,there still exists dual-track interest rates,that is,there are benchmark interest rates in terms of loans and deposits while monetary market rates are entirely determined by markets,which hinders the efficience of the conduction mechanism of monetary policy.In April 2018,Yi Gang,the governor of The People's Bank of China,expressed that China would merge the two rails of interest rates into one to deepen the interest rate liberalization reform.In this paper,we study the development and current status of China's interest rate liberalization reform,calculate China's interest rate liberalization index from 1996 to 2018,analyze how interest rate affect the financing constraints of SMEs,and empirically analyze the impact with ACW model,using data of China's SMEs board from 2004 to 2018.Research results indicate that China's SMEs are facing fainancing constraints and the process of interest rate liberalization would significantly ease the fainancing constraints of SMEs.In addition,this effect is even more significant for non state-owned enterprises than for state-owned enterprises.Besides,the improvement of financial resource allocation efficiency has a regulatory effect in alleviating the financing constraints of SMEs.The research results of this paper have certain enlightenment significance for government policy formulation,bank management decision-making and SME behavior.First,the government should deepen the reform of interest rate liberalization,make full use of structural monetary policy tools,and promote the flow of financial resources to the real economy;accelerate the construction of credit systems,strengthen financial supervision,and establish a good financing environment for SMEs.Second,commercial banks should formulate differentiated pricing strategies,improve risk management capabilities,and strengthen intermediary business innovation to reduce the impact of interest rate liberalization.Finally,SMEs should improve their financial management,enhance their credit awareness,and continuously improve their credit.