Free loan rates boost demand

With the lifting of the lending rate floor many Chinese businesses hope it'll become easier for them to access loans going forward. Zhang Tao reports from Shanghai.

Chen Zhiying has been running a tea business in Shanghai for more than two decades. Although he has about 40 shops in Shanghai and another 17 in other cities in China, even this large-scale business has been little help to him in getting bank loans.

"Most people do business by renting a shop. So where is your mortgage? If we don't have a mortgage, the banks will say well, I know your business is doing well, but we can't lend you money because you don't have a mortgage. The lending rate is set by the government, so it makes no difference to the banks whether they lend money to A, B or C. Why should they care whether your business is good or not? All they care about is whether you have a mortgage." Chen Zhiying, Chairman of Tea Scene said.

Chen said his company now works on a loan that accounts for only 10 percent of his revenue. With the lower limit on lending rates lifted, he said competition between banks may force them to offer businesses more flexible terms. He hopes he can expand his loans up to 20 percent or even 30 percent of revenue to develop his business.

"Most of domestic banks are not interested in the concepts of business plans or annual reports. This reform will force the banks to compete. That's the way things work in other countries, especially in America. If you can provide a solid business plan, many banks will lend you money. We would be better able to leverage our business." Chen Zhiying said.

Currently, China's benchmark lending rates range from 5.6 percent for six-month loans to 6.55 percent for loans of longer than five years.