China frees banks to set their own lending rates

Chinese authorities have given the banking system greater freedom by allowing it to set their own lending rates.

Previously banks were not allowed to lend at rates below a certain level set by the People's Bank of China (PBOC).

The People's Bank said it hoped the move would lead to lower costs for companies.

It is being seen as a significant part of the government's plan to make the economy more market-orientated.

"It's a very big deal, probably more in terms of what it symbolises than the effect on the economy," said Mark Williams, chief Asia economist at Capital Economics.

"China has been talking about interest rate liberalisation for a long time, this is one of the biggest steps they could have taken," he said.

Even before this move, Chinese banks had some freedom to lend at rates below the official level, but very few chose to do so.

While it might not have a huge impact on the economy, analysts think the move is an important step towards allowing China's currency to float freely on the currency markets.

The United States has long been calling for that to happen, arguing that China's currency has been kept artificially low, which gives companies producing there an unfair advantage.

"This underlines that China is moving to a fully convertible currency and floating exchange rates " said Flemming Nielsen, senior analyst at Danske Bank in Copenhagen.