China will launch a long-awaited deposit insurance system next month, the central bank said on Tuesday, a crucial step towards deregulating domestic interest rates and promoting market-based capital allocation.
Zhou Xiaochuan, the central bank governor, told reporters last month that China could remove the cap on bank deposit rates — the last remaining domestic interest rate subject to administrative regulation — by the end of this year.
Deposit insurance lays the foundation for freeing up rates by ensuring that savers are protected even if competition for deposits leads to excessive risk-taking and bank failure. The People’s Bank of China said deposits up to Rmb500,000 ($80,600) would be insured.
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