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Interest rates in China comprise a mix of both market determined interest rates (interbank rates and bond yields), and regulated interest rates (lending and deposit rates), reflecting China's gradual process of interest rate liberalization. We argue, using a theoretical model and empirical analysis, that the regulation of key retail interest rates diminishes the ability of the market determined rates to act as independent price signals, or as benchmarks for use in asset pricing and monetary policy. Further interest rate liberalization should, therefore, strengthen the information conveyed by movements in interest rates, allowing for the better pricing of risk and capital.

Banks and banking, International -- Risk management -- Econometric models. --- Global Financial Crisis, 2008-2009. --- Interbank market -- Econometric models. --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy --- General Financial Markets: General (includes Measurement and Data) --- Portfolio Choice --- Investment Decisions --- Finance --- Monetary economics --- Interbank rates --- Deposit rates --- Reserve requirements --- Interbank markets --- Liquidity --- Interest rates --- Monetary policy --- International finance --- Economics --- China, People's Republic of