by Hu Rongping (胡蓉萍) 

 
This is an abstract of the front page story from this week's edition of The Economic Observer, for more highlights from the EO print edition, click here.

The central bank is considering the introduction of the prime lending rate, a reference rate that in many countries indicates the price at which commercial banks lend to their most reliable customers.
The central bank, which is called the People’s Bank of China, sought advice from some commercial banks at the end of June and in early July.
The EO tried to contact the central bank for an interview, but had not received an answer when the newspaper went to print on Friday (July 13).
Currently, the central bank is trying to work out a Chinese model for the prime rate, considering the examples of the United States, Canada, Japan, the euro zone, India, South Africa, Hong Kong and Singapore.
Some commercial banks have already submitted to the central bank their recommendations, and the American model has become the preferred one.
“It will be an experiment with the prime rate. In the end, the model that suits China needs to be worked out through trials,” a top executive from China Construction Bank told the EO
The opponents of a Chinese prime rate mechanism say that it’s hard to reach a consensus within the industry because different parts of the country have different economic development situations and the regional differences are very significant.
Most commercial banks are in favor of the prime rate, which they see as a market-based mechanism.
“I think it is a very good mechanism. It can avoid malign competition,” a person working in the planning and finance department at the head office of China Merchants Bank told the EO.

Links and Sources
Dow Jones Newswires China Central Bank Studying Launch of Prime Rate -Report