China needs to improve the ability of the banking sector to serve a wider range of clients in the real economy, a former senior official said at the Hangzhou Bay Forum on Friday.
Zhang Guobao, ex-vice-chair of the National Development and Reform Commission and director of the National Energy Administration until 2011, said that securing finance remains challenging for many Chinese enterprises, and that this has been a problem for the real economy ever since the launch of the reform period.
“During more than 30 years of reform and opening up, the relationship between China’s financial industry and its real economy was like grandfather and grandson,” said Zhang. “For most of the time, the economy was weak, due to a shortage of financing.”
Zhang highlighted the stark regional disparities in interest rates that continue to persist around China.
In China’s north-eastern province of Heilongjiang, the average interest rate for loans is 6.2%, or 0.49 percentage points above national average, while for some companies it can rise to north of 10%.
The provincial agricultural sector is subject to an interest rate of 7.36%, as compared to a national average of 2.75% for the sector.
Zhang said that a targeted form of expanded financial inclusion would help to bolster bank profits, while also improving their ability to service the real economy.
“That is where I think the financial industry needs reform and innovation,” said Zhang. “Although banks tend to ‘love the rich and hate the poor’, they also need to get out to find good customers, and turn their unprofitable companies into profitable ones…so that more customers can pay interest to the banks.”
In order to improve financial inclusion, Zhang advocates a central government industry policy characterised by differential interest rates, providing preferential loans to priority areas for national development such as clean energy.
One example he made would be to provide cheaper loans to the renewable energy sector, and higher rates to traditional, pollution-heavy forms of fossil fuel energy.
“These coal-fired power stations cannot survive without the banks’ support,” said Zhang. “Why can’t banks charge them higher interest than wind and solar power stations?”