China's central bank chief has forecast the government could soon loosen its grip on the bank deposit rates that are kept artificially low to bolster lenders' profits.
The PBoC plans to liberalise deposit rates within one to two years, central bank governor Zhou Xiaochuan said at a briefing in Beijing, as part of the National People's Congress annual gathering.
China's central government holds majority stakes in the country's largest banks.
These institutions maintain their profit margins because of the spread between artificially suppressed deposit rates paid to savers and the interest they charge borrowers to maintain their profit margins.
The low deposit rates also enable the banks to extend cheap credit to other state-owned enterprises, which keeps the government-owned sector buoyant during economic downturns.
But while market-driven savings rates are possibly bad news for shareholders in SOEs - such as the central government - earning more on cash in the bank could deter the Chinese public from buying the high-yielding but opaque wealth management products that fund non-bank lending to the country's riskiest borrowers, such as property developers.
Shares in China's largest banks shares are not reacting. ICBC, the country's biggest lender, has risen 0.2 per cent in Hong Kong trading. That suggests investors do not believe the Beijing administration really will rush to change this fundamental component of the country's financial system. The prospect of liberalising interest rates has been discussed for years.