Financial Repression and Economic Reform in China

The People's Republic of China has completed the first decade of economic reform with remarkable achievements. At the same time, it is encountering severe economic problems in runaway inflation, crippling shortages, and large trade imbalances. This work uses a macroeconomic framework of development and financial repression theories to examine the PRC's performance. Improvements in the PRC's financial productivity, according to the author, can be achieved if Chinese leaders either (1) relax the real interest rate ceiling to discourage unproductive investment and free financial resources or (2) hasten the development of the equity market.