PBoC Governor Yi: Market to set future deposit and lending rates - Rabobank

Analysts at Rabobank point out that the new PBOC Governor Yi Gang, stated that China is going to allow the market to set future deposit and lending rates, as repo rates are now, and is also going to greatly open up the financial sector and remove foreign ownership caps on its banks and increase the scope of their involvement in the economy…by June.

Key Quotes

“Of course, we have heard exactly that promise before over the past few years – to absolutely zero effect; one also needs to understand that if these changes were to occur in a real way it would fundamentally change the essential nature of the Chinese economy in a manner that runs entirely counter to its state-led “Made in China 2025” goals. The entire “build it and they will come” and “just go for hubris and growth and employment” lending model of major Chinese banks would blow up like Syria is apparently about to if lending were made on a genuine market basis – and everybody knows that.”

“Meanwhile, China’s CPI and PPI were also released, and came in much below consensus at 2.1% and 3.1% y-o-y, respectively, That’s not good news given China’s “deleveraging” to date is driven almost entirely by higher nominal GDP (due to commodity market jiggery-pokery entirely at odds with a real market economy) – lower PPI in particular is going to slow that positive momentum.”