China to drop rate controls

China expects to fully liberalize its interest rates on deposits by 2016 at the latest, People's Bank of China Governor Zhou Xiaochuan told a news conference in Beijing on Tuesday.

Noting that deposit rate liberalization was definitely on the government's agenda, Zhou added: “I personally think it is very likely to be achieved within the next one or two years.”

Zhou also said that the growing popularity of investments in Internet-based funds, which pay higher interest rates than the country's banks, showed that China must allow the market to play a greater role in finance.

China's primarily state-owned banks pay rates set by the government that have for years remained stuck below national inflation increases. Under new government policies, however, China's rulers seek to liberalize the financial services sector, which includes steps to curb growing shadow banking, seen as a threat to financial stability.

In addition, Beijing will press ahead with plans to gradually internationalize the use of the country's currency, the yuan, for trade and investment. The 2008 financial crisis shook confidence in other currencies, opening up an opportunity to promote the yuan in international transactions, Zhou said. He added, however, that a timetable for this had not been set and much work remained to be done.

uhe/mkg (Reuters, AP, dpa)