2 forthcoming reforms for China banks revealed

It includes interest rate and RMB internationalization.

Barclays notes that these two reforms are key for China banks:

1. Interest rate liberalization should drive banks to be innovative, improve resource allocation efficiency and resolve SME financing challenges.

A deposit insurance system is needed in order to remove the implicit government backing of the banks. A market-based interest rate is needed and financial products depth and breadth need to be expanded (e.g. negotiable certificate of deposit, asset backed securities and wealth management products).

2. RMB internationalization: China needs to expand the cross-border channel of RMB bilateral flows, such as improving outflow of RMB under the capital account (e.g. simplifying outbound direct investment), allowing foreign company to raise capital in RMB onshore and allowing non-resident to invest in onshore RMB assets.

Meanwhile, the construction offshore RMB center is also important. Mr. Ma believes Taiwan has the potential to develop into another offshore RMB center, next only to Hong Kong.

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