To follow up on Bloomer’s post regarding China’s currency valuation (the CNY will now be allowed to fluctuate up and down by as much as 2% per day against the USD), China is undertaking some other serious financial reforms under President Xi Jinping. Former Prime Minister Wen Jiabao said over two years ago that Chinese banks “earn profit too easily … because a small number of large banks have a monopoly,” and that the only solution was more private capital in banking. Mr. Xi seems to agree, as on March 11th five private banks were approved to be opened across the nation (currently all banks are state-owned, and more likely to lend to state-owned businesses).
The announcement follows Tencent and Alibaba’s ventures into internet finance, and fittingly these two internet giants have been among the chosen investors. Among the reasons for welcoming the liberalization of the banking industry is that, through caps on interest earned on accounts, the Chinese were essentially subsidizing banks’ lending to their preferred corporations. Now, China’s central bank has announced these caps, too, will be phased out by 2016.