At a recent news conference, Zhou Xiaochuan, governor of the People's Bank of China, said that the interest rates for deposits might possibly be marketized within one or two years.

After the interest rates for loans were liberalized last July, the liberalization and marketization of deposit interest rates will almost certainly be introduced; and when realized this will represent a giant step forward in the ongoing financial reform endeavor. [Company Formation | Offshore Company | Company Incorporation]However, more measures like breaking monopolies are needed to advance financial reform, says a Beijing Youth Daily editorial.

Marketization means competition. Concerning the banking market, it means various banks compete with each other for deposits and offer different interest rates for deposits so customers have a choice.

That will in turn prompt banks to adjust their interest rates for loans as well as they compete with each other to issue loans. Therefore, a shrinking of banks' profits can be expected, while depositors and loan applicants might benefit.

How will the banks react? One possible move is, they might collude with each other so they offer similar interest rates and suppress possible competition from newcomers to the market. Their recent uniting with each other against Yu'ebao, an emerging Internet financial product that has attracted deposits thanks to the higher interest rate it offers, is testimony to their attitude toward competition.

Obviously, such uniting forms a monopoly. Being long cared for by the government in the planned economy, China's banks are used to cooperating with each other and lack the necessary spirit of competition, which is the key to a market economy. If they insist on establishing a monopoly then the financial reform program will not proceed as desired. Therefore, [Company Incorporation USA]to push on the reform of interest rate marketization, it is necessary to introduce other measures as well. Currently the authorities are reported to be doing studies into deposit insurance, potential bank bankruptcies or banks run by private capital, but the most important thing they should be looking at is establishing an anti-monopoly mechanism in the banking sector.

That will involve the coordinated efforts of the central bank, the China Banking Regulatory Commission, as well as the anti-monopoly agencies. Efforts to break the alcohol and gold monopolies have achieved good results and we expect an anti-monopoly mechanism in the banking sector to do the same.