J.D

Chinese Companies Need Stable Capital

China needs to stop regulating spreads for lending and deposit rates if it wishes to develop a real financial sector. In the absence of market discipline, a policy-induced capital shortage at SOEs is a prudent outcome. The normal incentive of the financial system is to lend all it can which promotes massive over-investment. If China's already there, the only solution is years of relative under-performance. That will be tough for China, as the country depends on investment for sustained high GDP growth.