China plans to push forward the deregulation of its interest rates next year to boost lending to private companies, a sector singled out at last month's leaders' congress as deserving of more policy support.
The People's Bank of China, the central bank, has applied to the State Council, China's cabinet, to approve a system that would allow banks more latitude in deciding what interest to charge to small and medium-sized enterprises, officials said. Many such SMEs are privately owned.
Chinese banks are currently allowed to set interest rates of 30 per cent higher than the PBOC fixed rate when lending to SMEs, but only 10 per cent higher than that rate when lending to state-owned enterprises.
This allows them some latitude in pricing for the extra risk that lending to private companies is believed to entail. It is not yet clear by how much this latitude may be increased after the State Council has considered the PBOC's proposal.
