Zhang Hong: How Far Is The Marketization Of Interest Rates From Us?

What is meant by

Why do we need to implement interest rate liberalization? The practice of foreign reform comes from Mackinnon's theory of financial suppression, Professor of Stanford University.

Specifically, when bank interest rates are lower than the market equilibrium level due to being regulated, they may lead to mismatch of funds and distort the behavior of financial institutions and enterprises.

For example, when the loan interest rate of banks is too low, there will be excessive borrowing from enterprises that can borrow money. Anyway, interest is so low that they will not borrow money or lend money.

Enterprises that really need capital may not be able to borrow money.

One of the best examples is that after the implementation of the "four trillion" stimulus plan in 2009, the state owned enterprises had no money to spend, so they made the king everywhere, but the small and medium-sized private enterprises went bankrupt because of the lack of financing.

If the marketization of interest rate can be realized, the flow of capital led by the market will maximize the efficiency of its use.

For banks, under the premise of strengthening risk control, viable SMEs are obviously more attractive than low income state-owned enterprises.

The formulation of interest rate liberalization is not new.

From the money market, the bond market to the interest rate liberalization, the related discussions have lasted for many years.

So far, China has realized the marketization of interbank market interest rates (bank mutual borrowing funds), bond market interest rates and foreign currency deposit and loan interest rates.

But in 2002, it was clear that "first foreign currency, then local currency; first loans, after deposits......"

But until 10 years later, the restrictions on bank deposit interest rates and the lower limit of lending rates have not yet been released.

Why

The first two objections are due to interest, because about 80% of the profits of our banks come from the interest rate of deposits and loans.

According to the data released by the CBRC in 2011, the average profit per day is 2 billion 850 million yuan, the daily interest rate has reached an astonishing 2 billion 200 million yuan.

For banks, because of the existence of huge spreads, they can not pursue the innovation of financial services, can easily choose the least risk customers, and can ignore the competition between peers.

The opposition of the state sector is well understood that interest rate marketization will greatly increase the cost of its financing, which is obviously not a good news for state-owned enterprises with low net asset returns (ROE).

The objection of the latter is mainly due to some experiences and lessons abroad in the process of marketization of interest rates.

According to a world bank survey, nearly half of the 44 countries that implemented interest rate marketization experienced a financial crisis.

The most typical case is Japan. Japan completed the marketization reform of interest rate in 1994.

The result is that big banks are struggling to attract interest by raising interest on deposits and lowering interest on loans, thus making many small banks either bankrupt or swallowed.

In addition, marketization also helped to increase the "gambler mentality" of banks, and poured large sums of money into the property market and stock market.

Yes