Interest Rate Liberalization In China Research Articles

Chinese monetary policy spillovers on its international portfolio investment flows

This paper examines Chinese monetary policy spillovers on its international portfolio investment flows with a factor-augmented vector autoregression (FAVAR) model. The paper extracts a FPI factor from certain time series to measure monthly foreign portfolio investment flows (FPI). Four Chinese monetary policies are considered: central-bank target policy rate; required reserve ratio; M2; banks' loans. The robust and significant results show that interest rates and banks' loans have significant impact on Chinese international portfolio investment flows, while changes in reserve requirements are not effective. It reveals the increasingly important effects of Chinese monetary policies on its cross-border portfolio investment flows following decades' capital account openness and the reform of interest rate liberalization in China, which indicates that Chinese monetary policy is approaching to a market-based framework.

THE EFFECTS OF ENERGY SUPPLY SHOCKS AND INTEREST RATE LIBERALIZATION IN CHINA

THE EFFECTS OF ENERGY SUPPLY SHOCKS AND INTEREST RATE LIBERALIZATION IN CHINA

Does Interest Rate Liberalization Lead to The Narrowing of Commercial Banks’ Interest Margins?

Based on the background of China’s interest rate liberalization, this paper empirically investigates the impact of interest rate marketization on China’s commercial banks’ interest margins using a fixed effects model using panel data of 39 commercial banks in China for the last decade from 2013-2022. The results of the study indicate that interest rate liberalization significantly reduces the interest margins of Chinese commercial banks. In the long run, with the deepening of interest rate liberalization, the interest margins of commercial banks tend to narrow. At the end of the paper, suggestions are made in relation to the current situation of interest rate liberalization in China and the research results.

Data Mining and Economic Application in the Age of Financial Big Data: A Case Study of Shadow Banking and Interest Rate Liberalization in China

With the booming of big data in finance, data mining technologies, as a new method of data statistics, have made superior economic applications available to researchers. Based on the relationship between shadow banking and interest rate liberalization, this paper intended to analyze the bidirectional relationship between shadow banking and interest rate liberalization using big data mining technologies. The relationship between data mining and the economic application of shadow banking was proven using data from 2014 to 2021. On this basis, this paper identified the bidirectional influence between shadow banking and interest rate liberalization. The findings show that shadow banking has positive contributions to the liberalization of interest rate, and the interest rate distortion resulting from interest rate control also drives the development of shadow banking. Moreover, feasible suggestions have been proposed for supervision on policies.

The Impact of Interest Rate Liberalization on the Systemic Risk—Based on the Panel Data of Commercial Banks

This paper uses coefficient of variation method and dynamic CoVar model to measure the level of interest rate liberalization and the systemic risk of commercial banks, and then based on the quarterly panel data of 14 listed commercial banks from the first quarter of 2009 to the fourth quarter of 2018, it empirically analyzes the impact of interest rate marketization process on the systemic risk of commercial banks. The results show that: the process of interest rate liberalization in China has significantly increased the overall systemic risk of commercial banks, and the robustness test further supports this conclusion.

China’s interest rate pass-through after the interest rate liberalization: Evidence from a nonlinear autoregressive distributed lag model

This study examines the interest rate pass-through (IRPT) mechanism in China after the interest rate liberalization by using the nonlinear ARDL (NARDL) model proposed by Shin et al. (2014). In order to dissect the IRPT of China appropriately, the interest rate transmission is divided into three stages in which changes in the policy rate are first transmitted to the target market rate and in turn, to the other interbank market rates and treasury bond rates, and eventually to the bank retail rates and corporate bond rates. The empirical results show that though changes in the monetary policy rate can be completely transmitted to the policy target market rate, they appear to be passed on to the other interbank market rates excessively and to the bank lending rates incompletely. Moreover, the pass-through from the policy target rate to the bond market rates is in general more sufficient than the pass-through to the bank retail rates. In addition, the patterns of asymmetry can be identified for the pass-through in the second and third stages, with the impact of positive shocks on the policy target rate being more pronounced than that of negative shocks either in the short or long run. These findings suggest that the interest rate transmission after the interest rate liberalization in China is far from being as effective as expected, and policy rate cuts might not have desirable effects on the real economy in the context of the recession.

Interest rate regulation, earnings transparency and capital structure: evidence from China

PurposeThe purpose of this paper is to use samples from Chinese-listed companies to investigate the effects of interest rate deregulation and earnings transparency on company’s capital structure in China over the period of 2003–2015. In particular, the authors study the link between state-owned enterprises (SOEs), economic growth targets and marketization in China’s unique institutional context.Design/methodology/approachBased on the methodology of quantitative analysis, the authors use baseline and cluster analysis for all samples with full set of controls, for robustness tests of alternative proxy of interest rate control by using a cluster analysis at the firm level, regarding endogeneity tests conducted fixed effect model with adding instrument variables (IV), two-period factors regression method via IV and system generalized method of moments for dynamic analysis.FindingsThe results show that earnings transparency increases firm leverage and the additional tests suggest that such an effect takes place via a mechanism by reducing the cost of debt finance. However, information transparency could moderate the effects of interest rate deregulation on corporate capital structure. In addition, it finds that SOEs are less sensitive toward the changes of interest rates in China because lending to SOEs is policy-oriented and lacks of market evaluation of business risk. Government control is conducive to enhancing the transparency of the whole industry; however, market-oriented reform is conducive to enhancing the transparency of the company’s own information.Research limitations/implicationsThe paper makes contribution to the relationship between earnings disclosure quality and capital structure in the Chinese unique institutional context, such as taking the progressive interest rate reform, SOES, different economic growth target and different marketization level in each province of China. The authors suggest that investors will pay more attention to the company’s own unique information transparency in the provinces with a high degree of marketization. As a potential direction for future research, the authors will investigate how the earnings transparency has impact on capital structure, and how such impact would depend on the transparency of specific business, the cap of foreign shareholding and the convenience of investment.Practical implicationsThis research would be the target of banking market reform in order to bring a fair financing environment for all businesses in China. It implies that current experiment of interest rate liberalization in China is not as efficient as it could be in allocating funds across all businesses. State banks, SOEs and local governments are still the biggest players on both the demand and supply sides of the Chinese credit markets.Social implicationsThe social implication of this paper lies in the fact that first, it provides additional evidence on the effect of market-oriented reforms through how the information transparency interacts with the financial decisions making of corporations. Second, it offers policy implication to banking market deregulation in China.Originality/valueThe paper makes contribution to the relationship between earnings disclosure quality and capital structure in the Chinese unique institutional context. This research tests the existing literature, such as Francis et al. (2004) and Zhang and Lu (2007), and suggests that informationally transparent firms have a higher debt ratio and lower effective interest costs on bank loans. In addition, this paper further explores the role played by interest rate deregulation in corporate finance, and in turn market fund allocation. This paper sheds new light on information transparency and explores the relationship between earnings disclosure quality and debt financing behaviors of Chinese publicly listed companies over the period of 2003–2015.

Interest rate liberalization and pass-through of monetary policy rate to bank lending rates in China

We examine whether the effectiveness of the monetary policy rate transmission differs before and after interest rate liberalization in China using the autoregressive distributed lag (ARDL) bound test and an error correction model (ECM). The results show that after liberalization the mark-up is lower, and both the long-run and short-run interest rate pass-through has become faster and more complete. We attribute our findings to the ongoing reforms of China’s banking system, which has improved the competitiveness of Chinese commercial banks.

Money market funds, bank loans and interest rate liberalization: Evidence from an emerging market

We report significant effects of the development of money market funds (MMFs) on bank deposits, loans and interest rate liberalization using bank data in China from 2008 to 2014. In particular, the development of MMFs has shifted away bank deposits and reduced banks’ ability to make loans. Furthermore, the yields of bank-guaranteed financial products and MMFs show a significant and positive relation, implying that the development of MMFs has promoted interest rate liberalization in China. These results remain to hold after we control for the potential simultaneity bias.

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

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.

Comments by Iikka Korhonen, on Interest Liberalization and the Estimation of Implicit Interest Rates in China's Banking Sector

November 01 2017 Comments by Iikka Korhonen, on Interest Liberalization and the Estimation of Implicit Interest Rates in China's Banking Sector Author and Article Information Online Issn: 1536-0083 Print Issn: 1535-3516 © 2017 by the Asian Economic Panel and the Massachusetts Institute of Technology2017Massachusetts Institute of Technology Asian Economic Papers (2017) 16 (3): 308. https://doi.org/10.1162/asep_a_00577 Cite Icon Cite Permissions Share Icon Share Facebook Twitter LinkedIn MailTo Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Search Site Citation Comments by Iikka Korhonen, on Interest Liberalization and the Estimation of Implicit Interest Rates in China's Banking Sector. Asian Economic Papers 2017; 16 (3): 308. doi: https://doi.org/10.1162/asep_a_00577 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentAll JournalsAsian Economic Papers Search Advanced Search Iikka Korhonen: This paper offers empirical estimation of “implicit” interest paid on deposits by Chinese banks. It argues that because of explicit interest rate caps, Chinese banks have been forced to offer other monetary rewards to attract deposits. Moreover, these implicit interest rates are almost comparable in size to explicit interest rates, or those allowed by the regulator. I find the empirical results quite believable, and they have an important implication for interest rate liberalization in China (which has already happened): Actual effects of liberalization on banks’ behavior and, for example, profitability may be much smaller than many people previously thought. This is an important result for many reasons. First, banks’ financial standing post-liberalization might be much better than we previously thought, as they are able to reduce implicit interest payments. Second, the stability of the banking sector need not be jeopardized because of interest rate liberalization per se; banks... You do not currently have access to this content.

The construction of ShanghaI Pilot Free Trade Zone and the interest rate liberalization in China

It is of practical significance to study how to fully play the promoting effect of Shanghai Free Trade Zone (SFTZ) on China’s marketization of interest rate after setting up SFTZ. In terms of interest parity theory, this article tries to divide the process of China’s marketization of interest rate into different stages and conduct in-depth study of the formation mechanism of interest rate of each stage from the perspective of capital flow. The results show that marketization of interest rate is a system project. It can be divided into three stages: official interest rate supplemented market, two-track system and integration, according to the progress of marketization of interest rate, and the formation mechanism of interest rate of each stage varies. Free trade zone is a domestic and international hub for capital flow. The condition of capital flow influences capital supply, thus affecting the formation mechanism of interest rate domestically in free trade zone and promoting the progress of China’s marketization of interest rate. Marketization of interest rate, capital account liberalization, internationalization of RMB, and construction of international financial center are the supplementary, inseparable and transitional process. Therefore, the promoting effect of SFTZ on the marketization of interest rate, the capital account liberalization, the internationalization of RMB and the construction of international financial center should be made full use of. Finally, on the basis of it, this study explores hardships that China’s marketization of interest rate faces after the foundation of SFTZ and puts forward corresponding policy suggestion.

Interest Rate Liberalization in China

Embarking on interest rate liberalization reforms nearly two decades ago, China has made significant progress. Our paper takes a closer look at interest rate liberalization in China, and reviews historical progress and current efforts that Chinese authorities have made to date. Similar to international experiences, the process of market-based interest rate reform is to liberalize interest rates of the money market and bond market prior to those charged for deposits and loans. In gradually liberalizing the loan and deposit rates, reform measures are introduced on foreign currencies before domestic currency, on loans before deposits, and on long-term and large-value loans and deposits before short-term and small-value instruments. Until now, the authorities has yet to take the final and most critical step — removing deposit rate ceilings — to reach full interest rate liberalization. Our paper also explains why the pace of interest rate liberalization is too slow, and points out the main barrier to the further liberalization. In addition, the appendix of this paper provides a chronicle of interest rate liberalization during the period from the beginning of the reform to 2014.

The Effectiveness of Interest Rate Liberalization

By building, calibration and simulating a DSGE model, we explain, analysis and predict the macro-economy and economic structure outcomes and fiscal policy effects of interest rate liberalization in China. The steady-state equation, impulse responses and numerical simulation show that higher real deposit rate and capitals marginal cost will suppress investment and capital growth, increasing the household and government consumption ratio in GDP, which improve the economic structure and promote sustainable development; increasing interest rates can decrease fluctuation of output and inflation but increase fluctuation of nominal interest rates facing with technological shocks, monetary policy shocks and fiscal policy shocks; increasing interest rates will have a more crowding out effect when facing government consumption shock; however, the improvement of the economic structure will enhance the positive effect on the output.

A FAHP-FUZZY Approach of Evaluating Banking Service Quality

With the development of the interest rate liberalization in China, the narrowing of spreads has great influence on China's commercial banks operating income, the commercial banks pressure is increasingly urgent. The electronic bank, as the main means of innovation, was being developed rapidly in recent years, which played an important role in reducing the constantly increasing intermediary business income during operation. The electronic banks promote the business innovation, and it is very convenient for the customer service. The purpose of innovation is to improve the quality of service. Bank service quality is an important factor to affect the bank's reputation and an important means of competition among banks. Based on the model of service quality of commercial banks, according to Chinese current situation, the paper puts forward an evaluation method using the FAHP-FUZZY model of service quality evaluation, in order to promote the continuous improvement of commercial banking service quality.

Interest Rate Liberalization in China

What might interest rate liberalization do to intermediation and the cost of capital in China? China's most binding interest rate control is a ceiling on the deposit rate, although lending rates are also regulated. Through case studies and model-based simulations, we find that liberalization will likely result in higher interest rates, discourage marginal investment, improve the effectiveness of intermediation and monetary transmission, and enhance the financial access of underserved sectors. This can occur without any major disruption. International experience suggests, however, that achieving these benefits without unnecessary instability, requires vigilant supervision, governance, and monetary policy, and a flexible policy toolkit.

Interest Rate Liberalization in China

What might interest rate liberalization do to intermediation and the cost of capital in China? China's most binding interest rate control is a ceiling on the deposit rate, although lending rates are also regulated. Through case studies and model-based simulations, we find that liberalization will likely result in higher interest rates, discourage marginal investment, improve the effectiveness of intermediation and monetary transmission, and enhance the financial access of underserved sectors. This can occur without any major disruption. International experience suggests, however, that achieving these benefits without unnecessary instability, requires vigilant supervision, governance, and monetary policy, and a flexible policy toolkit.