Market Research Chinese Interest Rates

The priority of Chinese economic reform program has been moving from thegrowth to the allocation efficiency of resources, and interest rate liberalization hasbeen selected as one of the apt institution arrangements promoting the finance reformprogram which aims to enhancing its ability to serve real economy. Most relatedliteratures found that after the government released the control of the loan rate in2013,this reform in China has created a milestone and the remaining will be the loosing ofdeposit rate control. This study was focused on the basic interest rate determinationmechanism and made a viewpoint that there is still a long way for the realization ofinterest rate liberalization in China.Compared with other fields of economy reform, the finance reform in China wasdelayed for historical reasons. And it has the characteristic of being explanted, whichmeans that the finance institution was made and explanted by the top-down processbetween the supply and demand of finance resources in the real economy. For theneeds of economic reform and development plan, the insufficient finance resourcesshould be directed to the specified fields, and the financial system should be designedto cut the direct link between the supply and demand entities in the real economy andthe state-owned commercial banks were used to allocate the resources. Consequently,the financial right which was originally owned by the real economy were deprived.For example, the majority enterprises in China did not have enough financingchannels, and the residents were not authorized to buy the bonds directly, as well asthe deposit was the main financial assets of the residents in China. Under thebanking-oriented financial system, the administrative control, which resulted ininterest markets disintegration, as well as interest rate non-market oriented in China.And the lack of financial right for the real economy, which directly related to theexplanted and controlled finance institution, made the real economic entities had noenough bargain power in the process of interest rate pricing.Based on this new research aspect, the Chinese interest rate liberalization processwas chosen to be the object, and the true marketilization was adopted to be thestandard, as well as the financial right was employed to be the main argument content.This study raised a two-sector macroeconomic model and did more investigation onthe enhanced one. The relationship between residents and enterprises’ financial rightand the endogenous finance system was well explained and this formed the basic and instrumental argument logic in this paper.The following sections were employed to run the argument process:1. Issuesraisedâ†'2.The endogenous basic real economy model, the supply and demand of fundand the basic mechanism of interest rate determinationâ†'3.The empirical study offinancial right in free market economy status and the evidences of free interest ratedetermination mechanismâ†'4.The gap analysis between China interest rateliberalization and the real liberalizationâ†'5.The empirical study on residents andenterprises’ financial right and their bargain power on interest ratedeterminationâ†'6.The empirical analysis on bank’s profitability and balance sheetcomponents to demonstrate the bank’s interest rate pricing advantageâ†'7. Casestudies to be the supplementary argument. Thus the argument process will move fromtheoretical to empirical analysis, from abroad experience to domestic practices. Thekey viewpoint was that the effect of insufficient financial right under financeregulation was significant and obstacle to the realization of interest rate liberalization.This study concluded that there was still a long way to realize true interest rateliberalization and some suggestions were raised based on the analytical process.