Reflections on China's interest rate marketization Abstract: Scientifically analyzing, comparing and drawing lessons from the successful experience of other market economy countries, objectively evaluating the present situation of China's interest rate marketization reform is of great guiding significance for smoothly promoting China's interest rate marketization reform. This paper discusses this issue from four aspects: reasons, advantages and disadvantages, conditions and steps of interest rate marketization. Key words: interest rate, market-oriented reform, experience, interest rate system and interest rate marketization are the core contents of financial market-oriented reform in the transition from planned economy to market economy in China. Interest rate marketization refers to the interest rate of financial institutions financing in the capital market. It is determined by the relationship between market supply and demand. When the supply exceeds the demand, the interest rate drops; When supply is less than demand, interest rates rise. 1 reasons for promoting interest rate marketization in China 1. 1 interest rate control affects the full utilization of domestic funds. This has worsened the competitive position of Chinese banks. At present, foreign banks enjoy super-national treatment, allowing foreign banks to charge fees on the basis of prescribed interest rates, but prohibiting Chinese banks from charging fees. This is actually equivalent to the floating loan interest rate of foreign banks, while the loan interest rate of Chinese banks is regulated. Domestic commercial banks can't determine the loan interest rate according to the project risk, so there is a so-called "reluctant loan" phenomenon, which objectively makes the loans flow to large and medium-sized enterprises and state-owned enterprises, while small and medium-sized enterprises and non-state-owned enterprises are hard to get praise. This way. Non-state-owned enterprises that are sensitive to interest rates and have good returns cannot increase their investment because they cannot obtain loans. Weakened the investment effect of interest rate policy. After China's entry into WTO, if interest rate marketization is not promoted, the hands and feet of state-owned banks will be bound. The advantages of Chinese banks' outlets cannot be brought into play. State-owned banks will be at a disadvantage in the competition. Since the reform and opening up, China's financial market has gradually developed under the impetus of the government. However, interest rate control and bond interest rates are not linked to the degree of risk. There is no reasonable proportional relationship between the capital market interest rate dominated by various bonds and the interbank lending rate and the money market interest rate dominated by open market interest rate. Monetary policy should be transmitted through financial markets. Interest rate is the core structure of financial market. It is impossible to form a liquid money market and an elastic interest rate system. It will inevitably greatly reduce the effect of monetary policy. 1.3 interest rate marketization is an objective requirement for joining the WTO and connecting with the international financial market. This means that China's financial industry will be fully integrated into the international financial market. According to the agreement, one of China's obligations is to further open the financial market. We must follow the "rules of the game" of international banking management, establish a sensitive price signal system and improve the market mechanism. This inevitably requires the establishment of a market-oriented formation mechanism of interest rates. At the same time, with the development of economic globalization, the linkage and convergence between national economies have been greatly enhanced, which requires the economic mechanisms of various countries to be closer and closer. Obviously, the current interest rate control in China does not conform to the mechanism of interest rate marketization in the international financial market, which leads to the disconnection between the domestic capital market and the international capital market. In a word, interest rate marketization is an objective requirement for China to expand reform and opening up and develop an open economy, and a rational choice to adapt to the development trend of the international economy. 2 Advantages and disadvantages of interest rate marketization 2. 1 Benefit analysis With the gradual deepening of reform, the economy has developed to a certain level. Controlling interest rates is out of date, and its cost is far from profit. The marketization of interest rate is an irreversible trend. Timely and moderate interest rate marketization has great benefits. First of all, interest rate marketization plays a very important role in the allocation of financial resources. Optimizing resource allocation is an important function of market economy. If the allocation of financial resources is not optimized, even a small deviation will make the efficiency of the overall economy lose significantly. Secondly, a special situation in China is the great employment pressure. China needs to solve the problem of10 million new jobs every year. Statistics in recent years show that. The most important contribution to solving the problem of new employment comes from small and medium-sized enterprises in cities and towns. How to better serve small and medium-sized enterprises? In particular, how the interest rate policy supports the development of small and medium-sized enterprises and enables them to obtain loans or other financing channels. To a considerable extent, it depends on the promotion of the important task of interest rate marketization reform. Third, in 2006, China's banking industry was fully open to the outside world, including market access, customer range and RMB business. At present, financial institutions in China have a fatal weakness, that is, their product pricing ability is poor. In particular, the pricing experience of loan products is insufficient, because there were many interest rate controls in the past and there was no chance to do it. If they don't take the initiative to reform the interest rate marketization, they may passively accept the disguised market interest rate in the market game, that is, accept the reality that the market interest rate has been marketized to a certain extent, and the result may put them at a disadvantage in the fierce competition in the future. 2.2 Risk Analysis 2.2. 1 Marketization of interest rates will narrow the deposit-loan spread. The marketization of interest rate is bred relative to interest rate control. The regulated interest rate will distort the real supply and demand of funds, and it is impossible to allocate social funds to the places where they are most needed. In a fully competitive market environment, after the interest rate control is abolished, the pursuit of high-quality customers by commercial banks will reduce the loan interest rate. The competition for deposits will lead to an increase in deposit interest rates, and as a result, the spread of commercial banks will often narrow. If the narrowed spread cannot effectively cover the risks. Banks will be forced to accept the fate of falling profits or even bankruptcy. The narrowing of interest rate spread brought by interest rate marketization is actually the loss of excess profits formed by capital participating in market competition as a production factor under the condition of interest rate control, and it is the performance of the law of the decline of social average profit rate in the field of commercial banks. At present, China still implements the upper limit management of deposit interest rate and the lower limit management of loan interest rate. The purpose is also to avoid breaking through the two boundaries and causing excessive competition.