Financial Repression

Between 2003 and 2011, Chinese interest rates were very low. Figure 3.1 shows that between 2003 and 2011 Chinese real interest rates on loans, that is, interest rates net of inflation, stayed below 5 % (except for a brief spike in 2009) and averaged 2.9 %. This graph uses the consumer price index (CPI) to adjust for inflation. Michael Pettis has argued that rather than CPI, we should deflate interest rates using the GDP deflator (a broader measure of inflation that considers all sectors of the economy rather than just consumers). Using this measure, the real lending interest rate between 2003 and 2011 was just 0.7 %. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.