Skip to: Content
Skip to: Site Navigation
Skip to: Search


Donald Marron

Money memes: Financial repression and China’s extractive elite

Chinese authorities have artificially lowered the interest rates that regular Chinese citizens earn on their savings and have directed these cheap funds to finance “staggeringly unprofitable” state enterprises that spin out wealth for connected elites.

By Guest blogger / June 25, 2012

A bank clerk counts Chinese yuan banknotes in Huaibei, Anhui province in this June 2012 file photo. Chinese authorities have artificially lowered the interest rates that regular Chinese citizens earn on their savings.

Stringer/Reuters

Enlarge

Financial repression and extractive institutions are two of the big memes in international economics today.

Skip to next paragraph

Donald B. Marron is director of economic policy initiatives at the Urban Institute. He previously served as a member of the President's Council of Economic Advisers and as acting director of the Congressional Budget Office.

Recent posts

Financial repression occurs when governments intervene in financial markets to channel cheap funds to themselves. With sovereign debts skyrocketing, for example, governments may try to force their citizens, banks, and others to finance those debts at artificially low interest rates.

Extractive institutions are policies that attempt to redirect resources to politically-favored elites. Classic examples are the artificial monopolies often granted by governments in what would otherwise be structurally competitive markets. Daron Acemoglu and James Robinson have recently argued that such institutions are a key reason Why Nations Fail. Inclusive institutions, in contrast, promote widely-shared prosperity.

Over at Bronte Capital, John Hempton brings these two ideas together in an argument that Chinese elites are using financial repression to extract wealth from state-owned enterprises. In a nutshell, he believes Chinese authorities have artificially lowered the interest rates that regular Chinese citizens earn on their savings (that’s the repression), and have directed these cheap funds to finance “staggeringly unprofitable” state enterprises that nonetheless manage to spin out vast wealth for connected elites and their families.

I don’t have the requisite first-hand knowledge to judge his hypothesis myself. But both his original post and recent follow-up addressing feedback are worth a close read.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on dmarron.com.

  • Weekly review of global news and ideas
  • Balanced, insightful and trustworthy
  • Subscribe in print or digital

Special Offer

 

Doing Good

 

What happens when ordinary people decide to pay it forward? Extraordinary change...

Danny Bent poses at the starting line of the Boston Marathon in Hopkinton, Mass.

After the Boston Marathon bombings, Danny Bent took on a cross-country challenge

The athlete-adventurer co-founded a relay run called One Run for Boston that started in Los Angeles and ended at the marathon finish line to raise funds for victims.

 
 
Become a fan! Follow us! Google+ YouTube See our feeds!