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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 18

China Business Intelligence No. 18

Feb. 2, 2007

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Highlights

I. Chinese Interest Rate Reform Breakthrough

  • Shibor is China's new benchmark interest rate replacing the PBOC's one-year deposit rate. Shibor's introduction will help promote liberalization of China's interest rate system, increase pricing accuracy for banking institutions and currency, as well as help promote greater currency reform.

II. Diagnosing Private Enterprises' "Short Life Span" Phenomenon

  • A handful of private sector industrial magnates were arrested for tax evasion, illegal activities and reckless diversification in 2006. Chinese private firms' 'short-life' phenomenon is becoming more evident. Since the late 1970s, the Chinese private companies have achieved high growth in terms of quality as well as quantity.
  • Overall, China's private companies should avoid attempts of reckless expansion. Rather, they should choose to seek sustainable growth. To better cope with the expansion of corporate size, they also need to enhance overall management capability. The excessive expansion of corporate size led to oversupply and stiffer competition and, eventually, resulted in lower competitiveness.

III. Implications of Foreign Banks Entering the RMB Service

  • On December 11, 2006, the Chinese Government opened RMB retail and bank card service to foreign banks. Overall, foreign banks' competitiveness will likely increase as they expand the number of branches and increase brand awareness.
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