China’s banks play a significant role in both the Chinese economy and in their economic policy. In fact, commercial banks are the dominant force in China’s financial system, even to the extent of determining pricing. The key characteristic of China’s banking system is what has been referred to by Carmen M. Reinhart, Jacob F. Kirkegaard, and M. Belen Sbrancia as financial repression.3 Financial repression occurs when governments implement policies to channel to themselves funds that, in a deregulated market environment, would go elsewhere. Policies include directed lending to the government by captive domestic audiences (such as pension funds or domestic … Continue reading China’s Banking System