Financial Distortions in China: A General Equilibrium Approach

By Diego Anzoategui, Mali Chivakul, Wojciech Maliszewski

December 24, 2015

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Diego Anzoategui, Mali Chivakul, and Wojciech Maliszewski. Financial Distortions in China: A General Equilibrium Approach, (USA: International Monetary Fund, 2015) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Widespread implicit guarantees and interest ceilings were major distortions in China’s financial system, contributing to a misallocation of resources. We analyze the impact of removing such frictions in a general equilibrium setting. The results show that comprehensive reforms generate better outcomes than partial ones: removing the deposit rate ceiling alone increases output, but the efficiency of capital allocation does not improve. Removing implicit guarantees improves output through lower cost of capital for private companies and better resource allocation.

Subject: Banking, Commercial banks, Credit, Deposit rates, Financial institutions, Financial services, Interest rate ceilings, Money, Production, Total factor productivity

Keywords: Bank depositor, China, Commercial banks, Cost of funds, Credit, Deposit ceiling, Deposit interest ceiling, Deposit interest rate ceiling, Deposit interest rate liberalization, Deposit rates, Equilibrium interest rate, Financial distortions, Global, Implicit government guarantees, Interest rate ceilings, Interest rate controls-is, Interest rate liberalization, Lending interest rate, Liberalizing deposit interest rate, SOE sector, Total factor productivity, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/274
Stock No:

WPIEA2015274
ISBN:

9781513565149
ISSN:

1018-5941

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