The influence of finance on the economy has been shown to be non-linear. When financial development exceeds the needs of the real sector, an economy will face the challenge of 'too much finance', which may generate problems such as rent-seeking, asset price bubbles, or even financial crises. China seems to have followed the 'too much finance' pattern in the most recent decade, during which a fast-expanding financial sector and a slowly growing economy coexisted. The empirical part of this study supports a non-linear (S-shaped) relationship between financial development and GDP per capita; in addition, the two financial development indicators used (total loans and private credit) appear to have opposite effects on economic growth.

This study explores the connections between financial repression policies and the possibility of financial crisis, a relationship that has been overlooked in previous literature. We focus on China, a country with one of the highest levels of financial repression in the world. China's case shows that when financial repression is maintained at a modest level, as the government did before 2008, the possibility of a financial crisis is low; however, when financial repression policies are pushed to an excessive level, as the government did after 2008, the national asset‐liability structure may be damaged to such an extent that a financial crisis becomes likely. The key to understanding the changing role of China's financial repression policies lies in the survival strategy of the Chinese party‐state, which regards finance as a powerful weapon and is eager to use it to address certain economic, political, or social problems that may endanger its rule.

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