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receives greater attention than in the past.
This implies
a shift in authority and influence away from the planning
department to the bank manager with regard to project financing.
12.
If project viability based on market conditions is to replace planning guidelines in the granting of bank loans to enterprises, a more flexible interest rate policy
will have to be adopted. The PBOC now seems more prepared to vary interest rates in response to economic conditions
and to use interest rates as a tool of monetary policy. To assist bank managers in rationing credit, interest
rates on bank loans have been raised and bank managers are
empowered to vary within a certain margin the interest
rates to be charged, depending on the operational
efficiency and credit-worthiness of the enterprises
seeking the loans.
13.
A series of more radical reforms at the regional
level have been undertaken since April 1986. They were
first introduced on an experimental basis in five cities,
namely Guangzhou, Chongqing, Shenyang, Changzhou and
Wuhan, but were extended rapidly to other large cities in
China. The main aim of the experiment was to end the
practice whereby regional banks could lend only up to the
limit of the cash reserves allocated by the central
government. Under the new policy, only loan targets will
be set, while the banks are left to find the funds
themselves. In other words, banks are encouraged to
develop their own deposit base and to expand their range
of services.
14.
A logical development in line with these reforms
is the establishment of short-term money markets, including markets for inter-bank loans and commercial
bills, which serve to improve the flow of funds among
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