The Chinese central government has signalled the launch of reductions on the maximum interest rate for loans made between private parties in China.
On 22 July the Chinese Supreme People’s Court and the National Development and Reform Commission (NDRC) jointly issued the “Opinions Concerning Providing Judicial Services and Protections to the Accelerated Improvements of a Socialist Market Economy System in a New Era” (关于为新时代加快完善社会主义市场经济体制提供司法服务和保障的意见).
The Opinions call for “large-scale reductions in the judicially protected ceiling on the interest rates for private loans,” which currently stands at 24%.
Zheng Xuelin (郑学林), a member of China’s Supreme Court, said that reductions in the maximum protected rate for private loans would be the “most effective solution” for “easing the cost and difficulty of enterprise financing, as well as preventing ‘taolu’ loans and fake loans at the source.”
The current ceiling for rates on private loans is based upon the “Supreme People’s Court Provisions Concerning Several Issues in Relation to the Applicable Law for the Review of Private Loan Cases” (最高人民法院关于审理民间借贷案件适用法律若干问题的规定).
The provisions state that “where stipulated loan between two parties do not exceed an annual interest rate of 24%, when the lender requests the borrower to pay interest in accordance with the stipulated rate, people’s courts of law should provide support.”
The provisions further stipulate that where the interest rate for private loans exceeds 36%, this excess part shall not be effective, and Chinese courts of law will support “applications made by borrowers for the repayment of interest paid in excess of an annual rate of 36%.”