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Interest Rate Reform Conditions in China Deeply Investigated by China's Economy & Policy

22 May 2012 • by Natalie Aster

The market-oriented reform of interest rates refers to the gradual relaxation of controls which would allow the price of capital to be determined by market supply and demand. Since 1996, China has systematically promoted the market-oriented reform of interest rates; after ten years of efforts, it has achieved some progress and created the basic conditions for moving further. Meanwhile, as social financing becomes more diversified, a variety of problems caused by interest rate controls have provided the motivation for promoting these reforms.

According to the article “The Conditions for Interest Rate Reform” by China's Economy & Policy-Gateway International Group (China's Economy & Policy), assuming that there are suitable conditions for promoting the market-oriented reform of interest rates, it is still necessary to assess the risks and benefits based on the domestic and international economic environments, and choose an appropriate time and strategy to implement the reform.

Article Details:

The Conditions for Interest Rate Reform
Published: April, 2012
Pages: 7
Price: US$ 200,00

In the 1970s, European countries, the United States, and other developed countries, actively relaxed controls on interest rates. In the 1980s, with the rise of global financial liberalization, the vast majority of countries, including developing countries in Latin America, followed suit by either relaxing or fully liberalizing controls, which set off a worldwide wave of interest rate marketization.

The experience of developed countries in marketizing interest rates shows that it is not only the result of national aspirations caused by domestic financial markets developing to a certain stage, but it is also an inevitable choice for financial institutions and authorities once the drawbacks of interest rate controls become increasingly evident. Interest rate marketization cannot be achieved overnight; the United States and Japan went through a gradual process that spanned about 20 years. The common international practice is for interbank lending interest rates to be liberalized first, followed by those for deposits and loans; initially, the interest rates for long-term large loans and deposits are marketized, followed by short-term small ones.

More information can be found in the article “The Conditions for Interest Rate Reform” by China's Economy & Policy-Gateway International Group.

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