Analysts see upside for China firms with possible rate cut

Mainland enterprises could benefit from an improved business environment in the second half of this year if interest rates were to be cut, as suggested by the central bank governor yesterday, analysts say.

The remarks made in Beijing by People's Bank of China Governor Dai Xianglong , while coming as no surprise, received a warm response from analysts in the territory, who believed China stood a strong chance of boosting economic growth while at the same time reining in inflation.

Despite the fact that Mr Dai gave no details on the rate cut, WI Carr (Far East) economist Joe Zhang said he expected a reduction by about one percentage point.

'China has had real negative interest rates for a long time. But the interest rate now is at a positive 4 per cent. That means there is plenty of room for a further cut.' He believed the reduction would most likely take place in September, when more economic figures from the first half are available.

China lowered its base lending rates by an average of 0.75 percentage points on May 1, its first such cut in more than five years.

Chinese banks' interest rates now stand at 12.24 per cent on fixed deposits of three years, 14.94 per cent on fixed deposits of five years, and 17.64 on eight-year fixed deposit accounts.

Economists said another rate cut could provide some relief to the debt-ridden state enterprises, but some doubted the effectiveness.