BEIJING Dec 16 China's borrowing costs will
have a tendency to rise once controls on interests rates are
lifted due to buoyant demand for funds, Central Bank Governor
Zhou Xiaochuan said on Monday.
Zhou said in an interview with Caijing magazine that
elevated interest rates will be a "unique trait" of China's
economy as rapid development in the world's second-largest
growth engine keeps borrowing costs high.
"The future point of equilibrium for the price of credit
will be decided by total supply and total demand," Zhou was
quoted as saying in the financial magazine.
"Relatively speaking, the total demand for credit in China
at present is biased towards the large side...Under such a
circumstance, the point of equilibrium for the price of credit
will be biased upwards."
Interest rates in China are managed by the government, which
tells banks how much to lend and how much to pay savers for
their deposits, in part to protect the profits of commercial
But the government says it is determined to eliminate state
control over the level of rates to address criticisms that
official interference with the cost of funding distorts the
economy and encourages an inefficient use of funds.
As such, interest rate liberalisation is among the
priorities for China's government as it tries to remake the
economy in its boldest reform effort in 30 years.
Zhou said that while the People's Bank of China will focus
on preserving financial stability during or after a crisis, it
will during normal times rely on competition to get financial
organisations to improve their services.
China's latest plans to change its economic strategy also
stresses the need for local governments to take responsibility
for debts they have incurred, Zhou said, while possibly allowing
them to use new channels to raise funds.
He said China would proceed with plans to free its capital
account, but would at the same time take precautions to control
risks arising from financial liberalisation.
(Reporting by Koh Gui Qing; Editing by Jacqueline Wong)