MNI INTERVIEW 2: PBOC's Ma Jun Says Rate Should Track Markets

     BEIJING (MNI) - A key commercial bank prime lending rate identified as

influential by the People's Bank of China should track market rates more closely

to improve monetary transmission as the central bank overhauls its rates

structure, a member of the PBOC's monetary policy committee told MNI.

     The loan prime rate, which is calculated according to the rates 10 big

commercial banks provide to their best customers, should increasingly be

correlated with market rates such as the 7-day repo rate and the 5-year

government bond yield, Ma Jun, the PBOC's former chief economist, said in an

interview on the sidelines of the Annual Meeting of the China Green Finance

Committee.

     In its quarterly report last Friday, the PBOC said its interest rate

liberalisation would focus on unifying the benchmark rates it sets itself with

market rates. It noted that the loan prime rate was widely followed in markets.

     Ma, who has advocated the introduction of a policy rate to guide market

expectations, said that the loan prime rate remains overly correlated with the

benchmark lending rates, which are no longer good indications of the PBOC's

monetary policy stance.

     The one-year LPR is currently at 4.31%, compared with 4.35% for the

benchmark loan rate, according to the National Interbank Funding Center.

     In another move which will contribute to the gradual liberalization of the

capital market, Ma said the China-UK Green Finance Taskforce, which he

co-chairs, is developing options to securitise green assets in the offshore

market via a channel in Shenzhen, in the country's southeast. If successful,

global investors buying the green asset-backed securities would not be

constrained by quotas or registration requirements applied for the Bond Connect,

CIBM, or QFII schemes, he said.

     To boost their appeal, legal disputes over these offshore green products

may be settled under English law, and international rating agencies could be

invited to rate them, he said.

     "If the proposal is accepted, this would be another channel for further

opening up China's green finance market," said Ma, who is Chairman of the Green

Finance Committee of China Society for Finance and Banking, an industrial

association set up by the People's Bank of China.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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