The Construction of Shanghai Pilot Free Trade Zone and the Interest Rate Liberalization in China

doi:10.1007/s12204-016-1718-z

Abstract

Abstract: It is of practical significance to study how to fully play the promoting effect of Shanghai Free Trade Zone (SFTZ) on China’s marketization of interest rate after setting up SFTZ. In terms of interest parity theory, this article tries to divide the process of China’s marketization of interest rate into different stages and conduct in-depth study of the formation mechanism of interest rate of each stage from the perspective of capital flow. The results show that marketization of interest rate is a system project. It can be divided into three stages: official interest rate supplemented market, two-track system and integration, according to the progress of marketization of interest rate, and the formation mechanism of interest rate of each stage varies. Free trade zone is a domestic and international hub for capital flow. The condition of capital flow influences capital supply, thus affecting the formation mechanism of interest rate domestically in free trade zone and promoting the progress of China’s marketization of interest rate. Marketization of interest rate, capital account liberalization, internationalization of RMB, and construction of international financial center are the supplementary, inseparable and transitional process. Therefore, the promoting effect of SFTZ on the marketization of interest rate, the capital account liberalization, the internationalization of RMB and the construction of international financial center should be made full use of. Finally, on the basis of it, this study explores hardships that China’s marketization of interest rate faces after the foundation of SFTZ and puts forward corresponding policy suggestion.

Key words: Shanghai Free Trade Zone (SFTZ)| interest rate marketization| capital flows| interest rate parity

摘要： It is of practical significance to study how to fully play the promoting effect of Shanghai Free Trade Zone (SFTZ) on China’s marketization of interest rate after setting up SFTZ. In terms of interest parity theory, this article tries to divide the process of China’s marketization of interest rate into different stages and conduct in-depth study of the formation mechanism of interest rate of each stage from the perspective of capital flow. The results show that marketization of interest rate is a system project. It can be divided into three stages: official interest rate supplemented market, two-track system and integration, according to the progress of marketization of interest rate, and the formation mechanism of interest rate of each stage varies. Free trade zone is a domestic and international hub for capital flow. The condition of capital flow influences capital supply, thus affecting the formation mechanism of interest rate domestically in free trade zone and promoting the progress of China’s marketization of interest rate. Marketization of interest rate, capital account liberalization, internationalization of RMB, and construction of international financial center are the supplementary, inseparable and transitional process. Therefore, the promoting effect of SFTZ on the marketization of interest rate, the capital account liberalization, the internationalization of RMB and the construction of international financial center should be made full use of. Finally, on the basis of it, this study explores hardships that China’s marketization of interest rate faces after the foundation of SFTZ and puts forward corresponding policy suggestion.

关键词: Shanghai Free Trade Zone (SFTZ)| interest rate marketization| capital flows| interest rate parity

CLC Number:

F 830

LUO Sumei1 (罗素梅), ZHOU Guangyou2* (周光友). The Construction of Shanghai Pilot Free Trade Zone and the Interest Rate Liberalization in China[J]. Journal of shanghai Jiaotong University (Science), 2016, 21(2): 234-246.

[1]	ZHANG P. Interest rate parity theory and its performance in China [J]. Economic Research, 1996(10): 34-43 (in Chinese).
[2]	ZHANG X, ZHU R M. Interest rate parity, capital flows and the pricing of the RMB exchange rate [J].Finance Research, 1999(6): 72-75 (in Chinese).
[3]	SUN M C, ZHANG P. RMB exchange rate, interest rate and arbitrage capital flows [J]. Finance, 1997(8):6-12 (in Chinese).
[4]	Mendoza E G. Sudden stops, financial crises, and leverage[J]. American Economic Review, 2010, 100(5):1941-1966.
[5]	LIU L Y, CHEN T X, GUAN Y Z, et al. The impact analysis of capital controls on capital flows volatility[J]. International Finance, 2013(2): 37-46 (in Chinese).
[6]	LI D Y, ZHOU X R. The strategic significance of Chinese enterprises “going out” [N]. Guangming Daily,2007-01-29(1) (in Chinese).

[1]	DAI Shuji1 (戴书吉), WU Xing1,2* (武星), PEI Mengqi1 (裴孟齐), DU Zhikang1 (杜智康). Big Data Framework for Quantitative Trading System [J]. Journal of shanghai Jiaotong University (Science), 2017, 22(2): 193-197.
[2]	ZHANG Cheng (张诚). Small and Medium-Sized Enterprises Closed-Loop Supply Chain Finance Risk Based on Evolutionary Game Theory and System Dynamics [J]. Journal of shanghai Jiaotong University (Science), 2016, 21(3): 355-364.
[3]	MENG Meng1 (蒙蒙), YU Jiuhong1,2* (禹久泓). Research on Gray System and Quantitative Model About the Fund-Raising Ability to China Private Equity Fund [J]. Journal of shanghai Jiaotong University (Science), 2016, 21(3): 365-369.
[4]	ZHANG Cheng (张诚). Research on Risks of Small and Medium-Sized Enterprises Online Confirming Storage Based on Evolutionary Game Theory and Subjective Bayesian Method [J]. Journal of shanghai Jiaotong University (Science), 2016, 21(2): 225-233.
[5]	LU Liangliang (卢亮亮). Performance of Price Limits: Evidence from Cross-Listed Stocks in China [J]. Journal of shanghai Jiaotong University (Science), 2016, 21(2): 247-256.
[6]	ZHAO Chengzhen1* (赵成珍), BU Wei2 (卜伟), SONG Jinling3 (宋锦玲). Price Fluctuation, Risk Hedge and Choice of Optimal Point [J]. Journal of shanghai Jiaotong University (Science), 2016, 21(1): 51-56.
[7]	CHU Xiaojun (储小俊). The Impact of Initial Public Offering Lockup Expirations on Liquidity: Evidence from Chinese Stock Market [J]. Journal of shanghai Jiaotong University (Science), 2016, 21(1): 81-89.