During Premier Li Keqiang's inspection of the Fujian Free Trade Zone on April 23, the head of one company told Li that through cross-border finance in the FTZ he could get a loan with interest of only 4 percent from an overseas bank, which is 1.35 percent lower than the Central Bank's benchmark loan rate.
Li said the aim of the FTZs is to advance reform by opening up cross-border capital flows, in order to reduce financing costs in China. He urged domestic banks to lower and rationalize their fees.
Since 2013, the central authority has launched several FTZs, including ones in Shanghai, Guangdong, Fujian and Tianjin, in order to promote trade and stimulate the real economy. The strategy has sent a clear signal to domestic banks that they should accelerate reform.
According to the general arrangement of FTZ, several pilot projects in the FTZs will accumulate experience for large-scale reform. As long as the FTZ pilot programs work, they will be promoted throughout the country. The competition from foreign banks may be a great challenge to the domestic financing industry, but it is expected to help solve the problem of high financing costs.
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