Further liberalisation of interest rates the way forward for China’s economy
Not only will the interest rate reform spur economic growth, it will also provide a level playing field for banks in the country. June 19, 2013 | Baron LaudermilkAccording to Goldman Sachs China strategist Ha Jiming, China’s average annual GDP growth could very well fall to around 6% over the next seven years, in sharp contrast to the average forecast from the country’s central government and economists. However, Ha’s left field forecast is not unjustified. With domestic industrial outputs slowing in June 2013, the Chinese economy has similarly stagnated. That said, China enjoys a special position – the country possesses several options to boost growth if it so chooses. One such option is through further liberalisation of interest rates, allowing banks increased freedom to pay their respective customers above the benchmark deposit rate and lend below the benchmark loan rate. Not only will the liberalisation of interest rates help level the playing field, in terms of the domestic banking sector, more importantly, it will help bring about a transformation, from being a middle-income country to a modern, high-income state. Raising the government-ordered ceiling on deposit rates would increase Chinese households’ ability to save, which would therefore support Beijing’s efforts to increase consumer consumption levels. Similarly, terminating the lending rate threshold will result in a drop of costs and debts for local businesses, enabling them to use extra capital for hiring and investment purposes; all priorities of the Chinese government. However, as pointed out by Hong Pingfan, chief of the United Nation’s Global Economic Monitoring Unit, rural and small community banks are likely to receive the short end of the stick as a result of interest rate liberalisation. But this must be discounted for, as virtually all Chinese banks have been able to maintain profit growth since Beijing tweaked interest rates in June 2012. While Beijing has toyed with the idea of... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: China, Regulation, Risk and RegulationChina,riskregulation,Risk and Regulation, China,Regulation,Risk and Regulation, Keywords:Ha Jiming, Goldman Sachs, Hong Pingfan, Qu Hongbin, PBoC, CBRC Ha Jiming, Goldman Sachs, Hong Pingfan, Qu Hongbin, PBoC, CBRC
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