Impact of Interest Rate Liberalization on the Financing of SMEs in China: Taking the LPR Reform as an Example

China used to prioritize high-speed expansion, but in recent years, high-quality development has replaced it. To better achieve these economic development objectives, China’s monetary policy framework is transitioning from a quantitative to a price-based approach. Small and medium-sized enterprises (SMEs) are essential to China’s economic growth. However, there has been ongoing credit discrimination in China’s credit market as a result of the dual-track interest rate transmission system and long-standing administrative control over interest rates. Large enterprises have encroached upon the financing space of SMEs, leading to a series of issues such as difficulty, high cost, and slow speed in financing for SMEs. To address the financing problems of SMEs, A multitude of scholarly investigations have collectively discovered that the liberalization of interest rates can serve as a catalyst in addressing this issue. In August 2019, the LPR reform was launched in China, marking a significant step in the liberalization of interest rates. The paper examines whether the LPR reform is capable of addressing the financing challenges faced by SMEs. By summarizing and reviewing relevant domestic and international research literature in recent years, this study first collates conclusions related to LPR reform and SME financing costs. This paper clarifies the theoretical achievements and practical conclusions of China’s interest rate liberalization in solving these financing questions of SMEs, proving that the LPR reform is effective in this regard.