Financial Distortions in China: A General Equilibrium Approach
IMF Working Papers, December 24, 2015
Source details
- Canonical URL
- Financial Distortions in China: A General Equilibrium Approach
Other formats
Bibliographic details
- Authors: Diego Anzoategui, Mali Chivakul, Wojciech Maliszewski
- Published: December 24, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513565149.001
Authors and Publication
- By Diego Anzoategui, Mali Chivakul, Wojciech Maliszewski
- December 24, 2015
- IMF Working Papers, Issue: 274, Series: Working Paper No. 2015/274
- Pages: 31
- Volume: 2015
- DOI: https://doi.org/10.5089/9781513565149.001
- ISBN: 9781513565149
- ISSN: 1018-5941
- Stock No: WPIEA2015274
Executive Summary / Key Findings
- Widespread implicit guarantees and interest ceilings were major distortions in China’s financial system, contributing to a misallocation of resources.
- In a general equilibrium analysis, 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.
Analysis and Mechanisms
- Interest rate ceilings (deposit rate ceiling) affect output but do not by themselves correct capital misallocation.
- Implicit government guarantees influence the cost of capital for private companies, and removing these guarantees lowers private sector cost of capital.
- Better resource allocation following the removal of implicit guarantees leads to output gains beyond those from liberalizing deposit rates alone.
Policy Implications and Recommendations
- Comprehensive financial reforms (addressing both interest rate controls and implicit guarantees) are more effective than partial reforms.
- Policymakers should prioritize dismantling implicit guarantees to improve capital allocation and reduce the cost of capital for private firms.
- Liberalizing deposit interest rates can raise output but should be paired with measures to improve allocation efficiency.
Subjects and Keywords
- 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
Source: Diego Anzoategui, Mali Chivakul, and Wojciech Maliszewski. "Financial Distortions in China: A General Equilibrium Approach", IMF Working Papers 2015, 274 (2015), accessed 9/17/2026, https://doi.org/10.5089/9781513565149.001