China close to permitting certificates of deposit

Seen as another key step towards liberalization.

China will likely allow commercial banks to issue negotiable certificates of deposit in the interbank market. China Construction Bank has submitted a plan to the People’s Bank of China, the central bank to issue negotiable certificates of deposit.

These are large certificates of deposit that traded on the interbank market. CCB is China’s biggest lender to home buyers.

Other banks are believed to be getting ready to offer the same products. Xinhua New Agency reported earlier this month that approvals for such negotiable certificates may be expected this year or early in 2014.

Approval for negotiable certificates of deposit would open the door for the issuance of large-denomination certificates of deposit to the general public, a move that would help in the setting of interest rates.

China removed its floor on bank lending interest rates in July, though it left its cap on deposit rates in place. The cap is currently at 110% of benchmark rates set by the central bank, and the benchmark rate for one-year fixed deposits is now 3%.

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