Interest Rates for Loans to China’s Real Economy Hit Record Lows

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A leading Chinese economist has highlighted the role played by loan prime rate (LPR) reforms in driving declines in the interest rates on loans to China’s real economy.

In an article written for Sina on China’s Q2 Monetary Policy Execution Report, Ren Zeping (任泽平) said that LPR reforms in tandem with other changes to China’s interest rate regime have helped to drive financing costs for Chinese enterprises to unprecedented lows.

“In June 2022 the weighted average interest rate for lending was 4.41%, 0.52 percentage points lower than the same period last year, and at the their lowest levels since records began.

“Personal home loan rates, interest rates for regular loans, enterprise loan rates and bills financing rates are further declining, and all of them are at historic lows, falling 1.01, 0.43, 0.41 and 0.32 percentage points respectively compared to December last year.

“This indicates that the financial sector is consolidating support for the real economy, and reductions to enterprise financing costs are seeing results.”

Ren said that in future the Chinese central bank will seek to further consolidate the results of the aforementioned reductions to interest rates, by means including:

  1. Improving the market-based interest rate formation and transmission mechanisms, and improving the central bank policy rate system, to guide market rates with a focus on changes to policy rates.
  2. Continuing to employ the effects of LPR reforms, stabilisation of bank liability costs, and guiding declines in interest rates for enterprise loans.”