Interest Rate Liberalization in China and the Implications for Non-State Banking

China has taken a cautious approach to financial market liberalization, opting to delay major reforms until after the liberalization of goods and other factor markets was complete. While the reform program may be following the generally preferred sequence, evidence suggests that the financial sector is lagging well behind other parts of the economy. A modern, well-functioning financial system is an essential part of a market economy, and China has arrived at the stage where further financial market reform is critical to its ability to achieve greater structural economic change.