BIZBIZCOMMENTCOMMENT
B6 Wednesday August 21, 2019
By Zhou Zheng
T
he People’s Bank of China (PBC),
China’s central bank, has decided
to improve the formation mecha-
nism of the loan prime rate (LPR),
which was launched in 2013. The rate
reforms aim to lower the fi nancing cost
for businesses and promote a market-
oriented interest rate. Many have
painted it as another monetary easing
measure under a diff erent name.
Indeed, the rate reform is expected
to lower the real lending rate to some
extent since the new LPR quotation will
be based on the PBC’s open market
operations – especially the medium-
term lending facility (MLF), which is
at around 3.3 percent for the one-year
MLF – then adding certain percentage
points. In contrast, the PBC’s one-year
benchmark lending rate, which has
not been changed since October 2015,
is 4.35 percent; the LPR rate followed
closely at 4.31 percent
until Friday.
However, it does not
mark the opening of
the fl oodgates. Against
the backdrop of an
economic downturn and
monetary easing world-
wide, the US Federal
Reserve cut the short-
term interest rate by a
quarter of a percentage
point at the end of July.
There have been heated
debates over whether the
central banks in the UK,
the EU and Japan should
lower interest rates ac-
cordingly.
China is also under
pressure from the global
easing cycle, but the
PBC has been keeping a
prudent monetary policy.
The one-year LPR was
quoted at 4.25 percent
and fi ve-year LPR was
quoted at 4.85 percent
on Tuesday, which was
a mild change. Moreover, it would be
risky for the central bank to let out a
great deal of liquidity, as the consumer
price index has been increasing for
fi ve consecutive months. The LPR is
conducive for lowering the lending rate
and channeling liquidity to small and
medium-sized enterprises (SMEs) to
stimulate the real economy. To make
sure that the liquidity goes in the right
direction and will not get out of hand,
China has reiterated putting a tight grip
on the housing market.
To better represent various demands,
the PBC expanded the quotation banks
from 10 to 18 and further diversifi ed the
members, including urban commercial
banks, rural commercial banks, foreign-
backed banks and private banks. The
move will not only introduce broader
participation by multiple players in the
banking industry; it will also inject vital-
ity into the market.
There is no doubt the LPR reformis good news for mobilizing the stock
market. The LPR reform together
with the postponed tariff s on the US
side and newly released guidelines for
building Shenzhen into a pilot demon-
stration area of socialism with Chinese
characteristics pushed A shares up on
Monday.
However, the performance of
banking stocks on the A-share market
suggested the LPR has put some weight
on banks, with the expectation they will
lose some profi t to enterprises.
Almost six years have passed since
the LPR was fi rst introduced. The rate
has followed the PBC’s benchmark rate
closely since then, which indicates the
commercial banks’ lack of motivation to
quote according to their situations.
Small commercial banks are mostly
following the benchmark rate or taking
concerted actions through setting up an
interest rate fl oor to keep the rate high
for the borrowers. The new LPR, whichis set to replace the benchmark interest
rate, leaves more leeway for the market
to play its role in forming lending rates.
This might benefi t large banks and
those with suffi cient capital.
After several bailout cases like
Baoshang Bank, Bank of Jinzhou and
Hengfeng Bank, small commercial
banks have gained more awareness of
their liquidity situation and become
more risk averse. Some urban and rural
commercial banks may face a dilemma
over whether to lower the rates.
The rate reform is also being
launched to boost the effi ciency of
monetary policy transmission, so that
the fi nancing diffi culty faced by SMEs
will be assuaged.
In order to achieve the goal, the LPR
has to be up for further improvement.
The loan rates are closely related to
the yield on deposits. The MLF is not
based on the deposit interest rate and is
distorted. When the deposit interest rate
changes, a question will arise
as to whether or not the LPR
refl ects the change.
The rate reform is an
important step toward a more
market-oriented interest rate.
Its eff ects for boosting the
economy are clear, given the
expectations of lower interest
rates. It will help SMEs with
their fi nancing and make
monetary policy more eff ec-
tive, but eff orts are needed
to further improve the LPR.
Other measures, such as
fostering private banks and
refi ning the system for the
private fi rms to issue bonds,
should also be considered
to address SMEs’ fi nancing
diffi culty.The author is a reporter with
the Global Times. bizopinion@
globaltimes.com.cnHK should embrace role in nation’s economic destiny
Key move in China’s interest rate reform doesn’t mark opening of fl oodgates
By Hu Weijia
The Chinese Academy of Sci-
ences, China’s highest academ-
ic institution in natural scienc-
es, has recently built a research
center in the Macao Special
Administrative Region (SAR)
for the study and innovation of
integrated circuit (ICs).
Some people wonder why
Macao, instead of Hong Kong,
is rising as a new star in IC
studies.
Ho Iat Seng, the candidate
for the next chief executive of
China’s Macao SAR, said re-
cently that he will help the city
seize the chances off ered by
the nation’s economic reforms.
If elected, Ho is expected to
strengthen economic links be-
tween Macao and the Chinese
mainland.
The State Council, China’s
cabinet, on Sunday unveiled a
document that aims to build
Shenzhen into a pilot dem-
onstration area of socialism
with Chinese characteristics.
Shenzhen is home to the head-
quarters of many high-tech
companies including Chinese
telecom giant Huawei. If Ma-
cao embraces opportunities to
join the nation’s development
and enhances economic ties
with Shenzhen, the SAR will
gain the chance to upgrade its
economy and foster strategicemerging industries such as
ICs. Macao has the potential
to become a research base for
Huawei.
Macao’s GDP per capita has
exceeded that of Hong Kong.
The Hong Kong SAR govern-
ment on Thursday revised the
real economic growth forecast
for 2019 to 0 to 1 percent from
an earlier estimate of 2 to 3 per-
cent.
Paul Chan, the HKSAR gov-
ernment’s fi nancial secretary,
said the risk of Hong Kong ex-
periencing an economic down-
turn is signifi cantly rising in
the face of internal and external
diffi culties, according to the Xi-
nhua News Agency.
Hong Kong has a great sense
of superiority as an internation-al fi nancial center, but now the
SAR needs a strong sense of
crisis. If Hong Kong continues
to turn a blind eye to the eco-
nomic opportunities off ered by
the mainland, the SAR will be
overtaken by more mainland
cities in economic terms.
One possible consequence
is that Hong Kong’s role in Chi-
na’s economic landscape will
be largely reduced.
Hong Kong residents have
to admit that Shenzhen has
surpassed Hong Kong in many
areas. The central govern-
ment’s plan to build Shenzhen
into a pilot area will support
the city’s development and en-
able it to become one of the
most advanced in the world.
An unreasonable sense of su-periority will further widen the
economic gap in terms of GDP
between Hong Kong and Shen-
zhen. Hong Kong’s future is in
the hands of its people. Even
if rioters continue to damage
Hong Kong’s economic recov-
ery, they cannot counter the rise
of Shenzhen, and Hong Kong
residents will be the ultimate
victims.
The central government will
do whatever it can to prop up
Hong Kong’s economy , but the
best choice for Hong Kong is to
embrace opportunities to join
the country’s economic devel-
opment.The author is a reporter with
the Global Times. bizopinion@
globaltimes.com.cnE
YEONECONOMY
Illustration: Luo Xuan/GTPage Editor:
liqiaoyi@
globaltimes.com.cn