Financial repression comprises "policies that result in savers earning returns below the rate of inflation" to allow banks to "provide cheap loans to companies and governments, reducing the burden of repayments.
[2] It can also lead to large expansions in debt "to levels evoking comparisons with the excesses that generated Japan’s lost decade and the 1997 Asian financial crisis.
"[1] The term was introduced in 1973 by Stanford economists Edward S. Shaw and Ronald I. McKinnon[3][4] to "disparage growth-inhibiting policies in emerging markets."
[2] Financial repression "played an important role in reducing debt-to-GDP ratios after World War II" by keeping real interest rates for government debt below 1% for two-thirds of the time between 1945 and 1980, the United States was able to "inflate away" the large debt (122% of GDP) left over from the Great Depression and World War II.
However, because low returns also dampens consumer spending, household expenditures account for "a smaller share of GDP in China than in any other major economy".
[1] However, as of December 2014, the People’s Bank of China "started to undo decades of financial repression" and the government now allows Chinese savers to collect up to a 3.3% return on one-year deposits.
Select pension funds have also been transferred to governments in France, Portugal, Ireland and Hungary, enabling them to re-allocate toward sovereign bonds.