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The Multi-Faceted Effects of Partial Interest Rate Liberalization in China

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  • Eddie C. Cheung
  • Michael C. Ng
  • Yiu C. Ma

Abstract

In this article, we investigate the effect of removing the bank lending rate floor in 2013 on the market for loans in China. Given the backdrop of gradual liberalization of financial markets, we analyze data from 2008 to 2018 to gauge whether the interest rate on securities of different maturities have been materially affected by this act of partial liberalization. We find that this action has affected short-term repo (repurchase agreements) interest rates but not long-term interest rates. There is also evidence that the efficiency of lending markets has improved, but the health of the banking sector overall seems to have deteriorated, with lower capital but higher nonperforming loans.

Suggested Citation

  • Eddie C. Cheung & Michael C. Ng & Yiu C. Ma, 2019. "The Multi-Faceted Effects of Partial Interest Rate Liberalization in China," Chinese Economy, Taylor & Francis Journals, vol. 52(2), pages 171-191, March.
    • Handle: RePEc:mes:chinec:v:52:y:2019:i:2:p:171-191
    DOI: 10.1080/10971475.2018.1545359
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    Cited by:

    1. Gu, Jiajia, 2021. "Financial intermediation and occupational choice," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    2. Kang, Kuan & Mohd Ashhari, Zariyawati & Dato Hj Yahya, Mohamed Hisham & Soh, Wei Ni & Li, Yue, 2024. "Interest rate liberalization and the stability of the Chinese banking system: Exploring chained mediation effects of deposit competitiveness and wealth management products," Finance Research Letters, Elsevier, vol. 62(PB).

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