China relaxes grip on interest rates China is relaxing its grip on interest rates with the launch of a financial instrument that allows banks to trade deposits with each other at market-determined prices. The certificates of deposits will push banks closer to an operating environment in which rates are deregulated and are also aimed at improving the circulation of cash in the country's interbank market. IN Asia-Pacific Companies Beijing used to fix deposit and lending rates, limiting competition between banks and in effect transferring cash from savers to borrowers because of the artificially low rates. But over the past two years, the government has rolled back its controls, lifting all restrictions on lending rates and giving banks more freedom to determine deposit rates. The CDs will be priced based on the Shanghai interbank offered rate, a decision that is likely to make Shibor the benchmark rate in the Chinese money market instead of the short-term bond repurchase rate, which has been viewed as a benchmark until now. Under the changes - which come into effect on Monday - individual CDs will have to be at least Rmb50m ($8.2m) in size and issuers will have to inform the central bank in advance how much they plan to issue in a year. Banks, fund managers and other institutions in the interbank market will be able to trade the CDs, but non-financial companies and retail investors will be barred. The liberalisation is seen as a necessary part of China's efforts to reduce its reliance on investment and boost consumption as well as to integrate itself more fully in the global financial system with lighter capital controls. Previously, banks could lend to each other in the interbank market, but there was no way to package those loans as products for trading between banks. The move to introduce CDs was expected as the next phase of China's programme of interest rate liberalisation, though many analysts believed Beijing would wait until next year. The launch appears to be another indication of the Chinese leadership's commitment to a relatively ambitious pace of financial reform. From the launch of the Shanghai free-trade zone, which will allow experimentation with looser capital controls, to new rules for stock market listings, Beijing has made several recent moves that give market forces greater sway in the economy. In a statement on Sunday, the People's Bank of China said the CDs "would standardise the interbank deposit business, expand the financing channels for institutions in the interbank market and promote the development of the money market."