Financial institutions cannot provide sustainable services to private and small companies if interest rates are not market-oriented, say experts. Photo: iStock

The key to encouraging financial institutions to better serve the private economy, is to make the interest rate more market-based, said Huang Yiping, vice president of the National Development Research Institute of Peking University, The Paper reported.

Financial institutions cannot provide sustainable services to private and small companies if interest rates are not market-oriented, Huang said.

China’s financial system has two salient features — banks dominate and the government intervenes. Among China’s financial assets, banks accounted for more than 70%, and the government’s repression of the financial sector ranked 14th among 130 countries, according to Huang.

“Such (a) system is more suitable for supporting large enterprises,” said Huang, “And there are certain discriminations for private companies and SMEs.”

Thus, Huang remained that interest rate liberalization is crucial to increasing the financial sector’s support to the private economy. It will also increase interest rates in the formal financial sector and lower interest rates in the informal sector, such as shadow banking and fin-tech.

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