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China is conducting a large experiment with interest rate liberalization, albeit in an uncontrolled and seemingly unplanned way. The pace of official interest rate liberalization has been glacial since 2004, only recently revived with the decision to increase flexibility around the benchmark deposit rate. Instead, an alternative system of unregulated deposits called wealth management products [...]
The recent downturn in economic growth in China has led to a renewed focus on the sustainability of the Chinese model. China is commonly described as following an export-led growth model, yet for at least the past few years this has not been true. It has been investment, rather than exports, that has driven growth [...]
I recently left a comment on Paul Krugman’s blog post on financial repression in China. Krugman wrote: I have no idea whether this John Hempton piece on China is at all right, but it’s a terrific read, and provides food for thought. Hempton basically argues that China has turned financial repression—controlled interest rates on deposits, which ensure [...]
An unexpectedly sharp slowdown and political drama at the highest levels has put a huge amount of pressure on the Chinese system. These things are occurring at a time when China faces a long list of needed reforms, all of which become more difficult to address the longer they are postponed. The problem is that [...]