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People's Daily Online>>China Business

Call to adjust interest rates (2)

By Zhao Huanxin (China Daily)

08:16, January 30, 2012

India was the first to have market-oriented interest rates among developing countries, Cheng said. "If deposit interest rates fluctuate, there will be more intense competition among banks to attract clients."

Cheng, however, highlighted a dilemma: while raising benchmark deposit interest rates helps subdue inflation and reverse negative interest rates, it could also put enterprises and local governments in dire financial straits.

And rising interest rates would also attract an inflow of "hot money", speculative capital.

"China's economy has seen a slowdown, but banks are still making huge profits. It is time for the government to consider fairer distribution between banks and people," Cheng said.

Wei Jianing, deputy head of the macroeconomic research department at the Development Research Center of the State Council, attributed local government debt risk to the locked interest rates mechanism.

"Negative interest rates restrain effective capital resource allocation and boost the illegal private lending market," Wei said.

Tackling social unrest

Commenting on the latest large-scale village protest against local authorities in Wukan village in Guangdong province, the former senior legislator said that the incident sounded alarms for the government.

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