Global financial institutions are hoping that China’s pledge to liberalise its financial system will bring opportunities in a market that has long stymied their efforts to gain a foothold.
Their hopes for swift progress may be dashed, however, as risks from within the system are likely to encourage policy makers to apply the brakes on reform. Last November, Communist party leaders approved a landmark agenda that included pledges to deregulate interest rates and liberalise the flow of investment funds in and out of the country.
Their goal was to improve the allocation of financial resources and correct distortions in the economy, putting the country on a secure footing for several more decades of rapid growth. For instance, a cap on bank deposit rates has encouraged excessive investment in infrastructure and manufacturing by keeping borrowing costs artificially low.
