Market-Based Interest Rate Reform

The People's Bank of China (PBC) is taking steps to advance market-based interest rate reform. Among its priorities are to widen the floating band on lending rates. The interest rate in the corporate bond market will also be allowed to move within a wider range.

Market-based interest rate reform is significant to the formation of an effective benchmark yield curve. To achieve this, the government will issue more types of bonds to ensure a sufficient array of instruments at various maturities.

Ease Rules On Bond Issuance

In September 2003, the government allowed securities companies with minimum net assets of CNY 1 billion (USD 121 million) and a record of profits in the previous year to issue bonds to the public or to qualified investors.

The government is also planning to further expand the scale and type of corporate bonds enterprises can issue. One of the initiatives being considered is to allow small and medium sized enterprises (SMEs) to jointly issue domestic bonds.

Foreign financial institutions will soon be allowed to issue CNY bonds in the People's Republic of China (PBC). This will enable foreign lenders, which have been allowed to provide CNY services to Chinese enterprises, to build CNY capital reserves.

Capital Market Development

The PBC will continue to promote the development of the capital market, according to the PBC's Monetary Policy goals for 2004. Among its objectives are support for the creation of a unified securities market and the improvement of the registration and settlement system for securities transactions.

New Corporate Tax Law

A new corporate income tax law will be submitted to the State Council in June 2004. Once ratified, the change is expected in 2006.

Legislative Amendments

Among the major items for legislation in 2004 are the Securities Law, Bankruptcy Law and the Corporation and Company Law. Amendments to the Securities Law seek better protection for small investors, while amendments to the Bankruptcy Law expand its scope to include all types of companies.

The Commercial Bank Law and the Law on Securities Investment Funds were passed in 2003.

Mainland and Hong Kong Closer Economic Partnership Agreement (CEPA)

The Securities and Futures Commission of Hong Kong, China and the China Securities Regulatory Commission have agreed to mutually recognize each other's securities and futures qualifications for practitioners, pursuant to their commitments under the CEPA. This aims to facilitate the flow of qualified personnel and expertise between PRC and Hong Kong, China. The CEPA became effective in January 2004.

The PBC and the Hong Kong Monetary Authority have also signed a Memorandum of Cooperation that allows banks in Hong Kong, China to conduct CNY businesses such as deposit taking, CNY-HKD exchange, cash remittance and credit card services.

WTO Commitments in Banking and Other Financial Services

The PRC's commitments for banking and other financial services under the WTO include the removal of "all non-prudential measures restricting ownership, operation, and juridical form of foreign financial institutions, including on internal branching and licenses geographic restrictions" within five years after accession.

PRC has been a member of the WTO since December 2001.