Last summer, the Chinese government lifted restrictions on lending rates and its recently announced planned removal of the bank deposit rate ceiling, which is seen as the last and most significant government restriction on interest rates, is the last obstacle the country must overcome until interest rates are completely liberalized. Both of these actions are signs of China’s attempt to transition into a market-based economy.
On Tuesday, Chinese officials also announced their intent to establish the country’s first privately owned official banks. China has 12 “joint-stock” banks with private capital owning 41 percent on average, but the 5 planned non-state banks, which will be located in Shanghai, Tianjin, Guangdong and Zhejiang, are slated to be completely owned by private investors. Although a list of investors has not been made public, Alibaba and Tencent topped the list of the 10 Chinese companies interested in investing.
Opening the banking system up to greater competition by liberalizing interest rates and establishing private banks is only a small step towards modernization, but analysts are welcoming the development. It will be interesting to see how China’s shift towards a market-based economy will affect the global economy in the coming years.
Source: NY Times