The Connection between Financial Repression and Economic Growth: The Case of China

Abstract

China exhibits the typical symptoms of a financially repressed economy, such as regulated interest rates, a dominance of state ownership, and managed credit allocation. A repressed financial system acts as a double-edged sword: on the one hand, the system may help China accomplish extraordinary economic growth by subsidizing investment and production, but on the other hand, it endangers China's economic health by damaging economic efficiency, slowing job creation, and distorting the country's economic structure. Therefore, a more market-oriented financial system is required to rebalance China's distorted economy and make China's economic growth more sustainable.