China to allow private banks, liberalise interest rates

China plans to allow the setting up of private sector banks and to fully liberalise interest rates on bank deposits in a phased manner, possibly within two years.

Initially, China Banking Regulatory Commission (CBRC) proposes to set up five private banks on a trial basis before allowing more banks to come up in more places, the chief of the country's banking regulator said today.

The first batch of the five banks will be set up in Tianjin, Shanghai, Zhejiang Province and Guangdong Province, Shang Fulin, head of CBRC, said on the sidelines of the annual parliamentary session.

Ten private companies, including internet firms Alibaba and Tencent, have been selected to take part in the preparation work for setting up the banks, Shang said.

He, however, did not set a timeline for the launch of the banks, saying that they will be approved when ''conditions are ripe''.

Each of the banks will be co-sponsored by at least two private capital providers, Shang said, adding that their eligibility as shareholders will be subject to further examination.

The private banks will be subject to the same regulation and supervision as the existing commercial banks, state-run Xinhua news agency quoted Shang as saying.

Shang said the new private banks will cater to the financial needs of small and micro businesses as well as residential communities.

The idea of setting up private banks in China was mooted as part of an ambitious reform package rolled out after a key plenum of the Communist Party of China Central Committee in November.

The financial sector reforms are part of a series of measures aimed at boosting domestic consumption and restructuring the economy away from its long reliance on exports and investment in infrastructure.