MNI China Press Digest, May 24: Consumption, CD, Rate Reform

     BEIJING (MNI) - The following lists highlights from the Chinese press for

Thursday:

     A series of measures to encourage an upgrade in consumption are to be

published, and will include expanding the import of middle- and high-end

products, and encouraging information and auto consumption, reported Shanghai

Securities News, citing anonymous sources from Ministry of Commerce. Consumption

growth will remain around 10%, and retail sales will amount to nearly CNY4

trillion this year, the report said, citing Zhao Ping, the Director of

International Trade Research Department of China Council For The Promotion of

International Trade Academy.

     Banks have recently increased their certificates of deposit (CD) rates to

40%-50%, in some cases even 55%, above the benchmark, reported Economic

Information Daily. This is directly related to the PBOC's decision to proceed

with interest rate liberalization reform, which causes the upward floating limit

of CD rates to increase, the report said. Rising CD rates show that pressure on

banks to get deposits has increased, said the report, citing Lu Zhengwei, the

chief economist at China Industrial Bank. 

***Comment: The CD interest rate ceiling, determined by market interest rate

pricing, has been relaxed under the guidance of the PBOC from 40%, 42% and 45%

higher than the benchmark CD rates - for the 'big four' state banks, larger

private stock-holding banks, and small regional banks, respectively - to 50%,

52% and 55% higher than benchmark rates.

     Combining the market rate and benchmark rate is an imminent problem in

interest rate liberalization reform, and regulators need to watch out for the

potential impact of a too-quickly rising deposit rate and a large withdrawal of

wealth management products, reported China Securities Journal. Interest rate

liberalization will proceed more smoothly when there is abundant funding, which

could prevent banks from competing for deposits by significantly raising their

deposit rates, the report said, citing Pan Xiangdong, the chief economist at New

Times Securities. In addition, the benchmark rate and market rate should only be

combined when the difference between the two is reasonably small, the report

said, citing Pan.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86-10-8532-5998; email: beijing@marketnews.com

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