Premier Li Keqiang's latest efforts to lower financing costs failed to impress market observers, with some interpreting the steps as a signal that the leadership may slow the pace of interest rate liberalisation. Some of the steps which come in the form of administrative orders and seek to shift the burden on banks would not help much in lowering borrowing costs, analysts said. Rather, they marked a step back from Beijing's goal towards giving market forces a greater say in deciding interest rates, they said. The State Council said at a Wednesday meeting chaired by Li that financing difficulties "remained prominent", particularly for small companies. It reiterated a vow to set up smaller banks and develop capital markets. The cabinet also said it would push forward interest rate liberalisation "in an orderly way". [Banks should] correct their practices of purely chasing profits STATE COUNCIL The wording differs from the guideline set by Communist Party leaders last year, when they vowed that the pace would be "accelerated". The change was a "clear indication" that the cabinet "intended to push down financing costs through reducing the speed" of interest rate reform, Everbright Securities chief economist Xu Gao said. In March, central bank governor Zhou Xiaochuan estimated a timetable for the country to wrap up interest rate reform in one to two years. The cabinet also said it would curb "unreasonable rises" in banks' fund-raising costs and restrict them from using high interest rates to lure deposits, moves seen by analysts as again conflicting with the goal of promoting market competition. While banks' returns on deposits are still capped at 1.1 times the benchmark rate, various wealth management products with higher returns and popular internet-based savings products such as Alibaba's Yu E Bao have boomed. Beijing aims to relax control on interest rates to boost competition and correct imbalances in resource allocation as part of its efforts to transform the country's growth model. However, Xu said slowing the pace of liberalisation might be an inevitable choice as Beijing feared that relaxation would push up borrowing costs. Large state-owned enterprises can enjoy a rate of 5.8 per cent for a one-year loan, while some small firms with limited financing channels face borrowing costs as high as 15 to 17 per cent. SOEs have long enjoyed an advantage in obtaining cheap loans as they have good relations with banks, can offer sound collaterals, and are generally insensitive to cost changes. The funding problems facing small companies are not mainly due to scarce liquidity. In fact, new yuan loans soared to 1.08 trillion yuan (HK$1.36 trillion) last month, as Beijing sought to defend its gross domestic product growth target at about 7.5 per cent this year. But most loans have flowed to property sector and fixed-asset investments backed by local governments and state firms. The State Council called on banks to "correct their practices of purely chasing profits and competing for greater asset sizes". This might not work as banks were commercial-driven entities, said Huang Can, a general manager at China Chengxin International Credit Rating. "[The government] should still focus on structural reform, such as overhauling the fiscal and tax systems, rather than rely on mini-stimulus measures," she said.