ABSTRACT
This chapter explains China, which is a more complicated version of the 'bad financial repression' story. It shows that the connection between financial repression and economic growth is more complicated than has been suggested by previous studies. The low cost of capital in China has made it an anomaly in comparison with other countries, developed or developing. In addition to interest rate controls, China's economy suffers from other financial repression policies, namely, credit misallocation, the dominance of state ownership, and exchange rate distortion. The chapter examines the production function method is used to estimate the Total Factor Productivity (TFP). On the one hand, interest rate controls contribute to economic growth by lowering the cost of capital, and exchange rate distortion promotes economic growth by stimulating exports; credit misallocation and state ownership in the banking sector retards economic growth by damaging economic efficiency. The chapter shows that China is a more complicated version of the 'bad financial repression' story.
