China, a land infamous for dynastic and cultural revolutions, is finally undergoing the financial revolution its bustling, vibrant, modern economy has long needed. The changes that have taken place in the world’s second-largest economy over the past 12 months have been both seismic and startling.
Last year, China’s new leaders launched the Shanghai free-trade zone, modelled on Hong Kong’s free-port system, and relaxed lending rates. Already this year, the nation’s currency, the renminbi, has started trading more freely – a big step towards the liberalization of interest rates, which top leaders, including premier Li Keqiang, see happening as early as 2015.
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On March 11, Zhou Xiaochuan, governor of the People’s Bank of China, predicted that bank deposit rates would be liberalized "within one or two years", most likely in 2016 – faster than even the most bullish analyst had expected. That month also, on March 7, China’s onshore bond market suffered its first-ever default, when Shanghai Chaori Solar Energy Science & Technology failed to make a full coupon payment.
Many have long fretted that one default would open up a box worthy of Pandora, and so it might – on March 18, Beijing-based investment bank CICC in a research note highlighted at least a dozen examples of mainland corporates with limited cashflow and heavy debts, including Sinovel Wind Group and Baoding Tianwei Baobian Electric.
