ECONOMIC - FINANCE, INTEREST-RATE POLICY, CHARTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000700140367-8
• Release Decision: RIPPUB
• Original Classification: R
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: August 9, 2011
• Sequence Number: 367
• Publication Date: November 13, 1953
• Content Type: REPORT

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CLASSIFICATIAN RESTRICTED
SECURITY INFORMATION
CENTRAL INTELLIGENCE AGENCY
INFORMATION FROM
FOREIGN DOCUMENTS OR RADIO BROADCASTS
REPORT
CD NO.
DATE OF
COUNTRY China
SUBJECT Economic - Finance, interest-rate policy, charts
HOW
PUBLISHED Weekly periodical
WHERE
PUBLISHED Shanghai
DATE
PUBLISHED 3 Jul 1952
LANGUAGE Chinese
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DATE DIST. 13 Nov 1953
NO. OF PAGES 9
SUPPLEMENT TO
REPORT NO.
Ching-chi Chou-pao (The Economic Weekly), Vol III, No 26, 1952,
pp 510-513
harts are appended./
China's interest-rate policy is complex and many-sided, as one would ex-
pect in a New Democratic economy comprising five different components. Cne
aspect of the interest-rate policy is to be seen in the relationship between
state banks and public enterprises. State banks provide circulating capital
to public enterprises to enable them to carry on production and trade. To en-
courage public enterprises to make exhaustive use of their own capital, to
prevent their using excessive amounts of state bank capital, to promote the
practice of coat accounting, and to accelerate business capital turnover, the
state banks must charge a certain rate of interest on loans to public enter-
prises. The interest rate increases as the loan period increases.
Another aspect of the interest-rate policy is seen in the relationship
between state banks and private enterprises. When state banks grant loans to
private enterprises, the objective is to allocate credit to control the de-
velopment of private enterprise according to plan. Different private enter-
prises can be stimulated, maintained, or suppressed through the granting or
withholding of loans and through controlling the amount and duration of loans.
Thus the interest-rate relationship is designed to bring the private sector
of the economy under the direction of the socialist public sector.
The interest-rate relationship between state banks and individual pro-
ducers (farmers and handicraftsmen) is designed to guide them toward cooper-
ative production. Moreover, the interest-rate relationship between private
banks and private enterprises is governed by state banks and is an outgrowth
of state economic policy.
DISTRIBUTION
I
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STAT
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When Shanghai was first liberated, there was a period when the People's
Bank did not exercise strict control over the market interest rate. From
1 June to 5 September 1949, each time the interest rate had to be changed it
was necessary for those engaged in financial operations to consult the finan-
cial market for approval. Consequently the People's Bank occupied a compara-
tively passive position.. At this time, private finance capitalists were
closely linked with speculative capital, and naturally were unwilling to in-
crease interest rates in order to bring down commodity prices. Therefore,
the interest rate posted by the financial market was far different from that
on the black market. Within a short time large amounts of capital collected
in underground financial organizations. The black-market interest rate
dominated the legal interest rate, and served as a sensitive indicator of
the availability of capital.
On 6 September 1949, an interest-rate committee was established under
the auspices of the finance industry The 21-man committee, including two
representatives of public banks, met daily to decide that day's interest
rates on loans and deposits. This system continued until 25 November.
On this date, the method of independent deliberation was abolished and
replaced by the direct intervention of the representatives of the state bank.
Each day the committee convened to adjust the interest rates on the basis of
a systematic policy. After the interest rates were determined, they were
tot graphed to tank: throughout the entire country as a basis fc: adjusting
interest rate: in all parts of the country. But because commodity prices
rose suddenly during this period, the interest-rate committee could not com-
pletely control the situation by means of raising the interest rates. The
underground interest rates consistently exceeded those set by the committee
by from 20 to 100 percent.
In the period from 26 November 1949 to the end of February 1950, the
state bank not only strengthened its leadership over the interest-rate com-
mittee but also itself turned to a policy of systematically adjusting the
interest rate.. Throughout this period of fluctuating commodity prices, the
state-bank interest rates rose to keep pace with the black-market interest
rates and increased the pressure on speculators. When commodity prices were
falling and leveling out, the interest rates were reduced correspondingly,
thus lightening the burden on industrial and commercial enterprises. This
policy was not without a stabilizing effect upon the market. However, to
being ,iown commodity prices, various kinds of policies must be applied. It
is not enough merely to rely upon the single policy of systematically adjust-
ing the interest rate to bring down prices. Therefore, there was no way to
avoid commodity price fluctuation during this time.
In March 1950, control of the entire country's finance and economy was
centralized. In April, monetary controls were applied and both currency and
commodity prices were basically stabilized throughout the nation. This was
a turning point for the state-bunk interest-rate policy. Up to this time,
the state bank had considered how to apply interest rates so as to stabilize
the market. After this, the state bank considered how, on the basis of stabi-
lized currency and commodity priced, to reduce the high interest-rate level
throughout the nation, so as to lighten production costs and commodity-flow
expenditures; and how to utilize the interest rate to lead and to stimulate
business reconstruction and to achieve the tasks set by our state economic
policy.
From Marcn to June 1950, the interest-rate committee issued monthly ad-
justments in interest rates. At the same time, three objective factors oper-
ated to bring down the interest rates: (1) underground financial organizations
had all but been destroyed; (2) currency and commodity prices throughout the
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whole country had become stable; and (3) because the whole country's interest
rate was under the centralized direction of the main office of the People's
Bank, it was possible to supervise the equalization of the interest-rate levels
of the various areas. Because of these three conditions, the People's Bank,
afte. March 1950 could make great strides toward equalizing the interest rates
of banking groups in ether areas with the interest rates of this city. This
process was successfully completed in June 1950.
With the coming of 1951, the nation's interest rates, under the central-
ized control of the main office of the People's Bank, were progressively low-
ered according to plan. The interest rates were first adjusted in March, the
state bank reducing its interest rate simultaneously on public loans and de-
posits. But to stimulate long term savings by the people, and, at the same
time, to encourage production and to promote the exchange of goods between
town and country, it was decided to make the interest-rate reduction on
private loans greater than that on private deposits. Although the bank's
rate of profit was reduced, the increased volume of loans and deposits resulted
in a greater surplus.
I4ie second adjustment was made in May. For nearly a year, the interest
rate or, loans by local banks had remained unchanged from that laid down by the
banks themselves in June 1950 - - a monthly rate of .30 to .39 percent. During
this interval, deposits had nearly doubled, commodity prices had been stabi-
lized for a long time, and the bank's interest accumulation had expanded.
Consequently, it was time to readjust the interest rates on private deposits
and loans, and reduce the differential between them. In July, to welcome the
autumn harvest and to stimulate production and the interflow of goods between
town and country, the interest rate was lowered again. In December, the
interest rate on locally issued loans and on parity deposits was lowered; but,
to encourage workers to put their year-end bonuses into savings, the rate on
fixed deposits was not changed.
On 1 January 1952, the state bank again led our banks to reduce the inter-
est rates on loans and on current deposits. On 1 March, the rate on fixed de-
posits was adjusted; at the same time the state bank progressively lowered the
interest rate on private loans on 5 March, 15 March, and 17 March.
Each time an adjustment was made, different interest rates were set ac-
cording to the type of industry, the type of management jtate, public-private,
private7, the circumstances facing management and labor-management relations
within different enterprises, the length of the loan or deposit, and the type
of loan or deposit. In this way, the requirements of state economic policy
were m.t and the Interest rate wan applied so as to guide enterprises, promote
managerial efficiency, and guarantee a reasonable profit. At a time when the
value of money had been stabilized, it was necessary also to utilize the inter-
est rate to encourage the conversion of deposits from parity-deposit units to
currency, from current to fixed, and from short-term to long-term. Each time
the interest rate was adjusted, the requirements of the state's economic policy
were substantially revealed in the complex interest rate structure.
Following the Three Anti and Five-Anti Movements, currency and commodity
prices attained over-all stability throughout the nation, the prices of some
commodities fell, the black market was swept away, and speculation was rigidly
contained, The state bank, on 26 June LT952/, opportunely put into effect a
sharp reduction in the Interest rate, cutting interest on loans to industries
by 28 to 50 percent, cutting interest on loans to commercial enterprises by
1.9 to 39 percent, and suitably reducing the interest on deposits. This marked
a great achievement in the state bank's control of interest rates. With the
elimination of the five evils and the disappearance of profiteering, the timely
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large-scale reduction in interest rate by the state bank had a decidedly posi-
tive effect in guaranteeing a reasonable profit to enterprises, and in stimu-
lating production and trade between town and country.
The adjustment of the interest rate on this occasion was marked by the
following characteristics:
1. Because of the stabilization of currency and commodity prices, and
even the reduction of some commodity prices, following the Three-Anti and
Five-Anti Movements, the reduction in interest rate was the largest to date.
2. The managers of industrial and commercial enterprises were not the
only ones to benefit from the sharp reduction in interest rates on industrial
and commercial. loans. Because of the lowering of costs in production and
trade, the people could benefit from lower commodity prices. The overall re-
duction in commodity prices resulting from the Three-Anti and Five-Anti Move-
ments led to an increase in the value of money and to an increase in the
value of interest payments. Therefore, it would have been unreasonable not
tr, make a corresponding reduction in the interest rate on deposits. More-
over, since the state bank was supplying industrial. and cormiercial loans at a
lower interest rate, it was necessary to reduce the interest paid on deposits
in order to cut down on expenditures. But to stimulate long term savings by
the people, the reduction in interest rate on deposits was not so great as
that on loans. As a result the differential between the interest on loans
and that on deposits was the narrowest to date.
3. Parity-deposit savings had been initiated during the inflationary
period of the past. With the stabilization of commodity prices, especially
after' the successes achieved in the Three-Anti and Five-Anti Movements,
their utility gradually disappeared.. Therefore, when the interest rates were
adjusted this time, the occasion was used to suspend parity-deposit savings.
h. When savings are deposited for a relatively long period, in general
they will satisfy business requirements for relatively long-term capital.
In the past there was no differentiation between interest rates on savings
deposit and fixed deposits, so that some capital for industrial and com-
mercial enterprises flowed into savings. This enlarged the proportion of
current deposits in savings deposits, advanced the turn-over date of savings
deposits, and shortened the average turn-over period on savings deposits.
Wien tn,: interest rate was adjusted ttiis time, the interest rate on savings
deposits was made sightly higher than that on fixed deposits. Hereafter,
savings deposits should become more stable, and the contents of savings
deposits should become more self-evident.
5 Formerly, when a loan's due date was extended, the renewal interest
rate. was calculated only on the period of the loan's extension. There were
soc:e who capitalized on this opportunity to avoid paying a part of their inter-
est, thus causing loss to the state. When the interest rate was adjusted this
time, it was decided that whenever a loan's due date is extended in the future,
the renewal interest rate will he calculated on the period extending from the
first day of the loan right down to the new due date. This is a more thorough
method of computing interest.
6. Formerly, the interest rate on deposits paid by the state bank was the
same as that paid by local banks. However, to promote loans, the interest rate
on private loans made by the state bank was lower than that of the local banks.
When the interest rate was adjusted this time, the now rates were applied
equally to state and local banks, so that the costs of industrial and commercial
enterprises could be standardized in the various areas of the country.
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7. Formerly, interest rates were varied according to the type of industry,
to the period of the loan, and to the type of management ,ublic, private,
etc_7. When the interest rate was adjusted this time, detailed standards were
provided so that variations in the interest rate could be made on loans within
the same industry and for the same period of time. Depending on whether the
enterprise is directly concerned with the national economy and whether circum-
stances exist for improving business operations or labor-management relations,
different interest rates can now be charged to enterprises within the same
industry. In this way, the interest rate can be used effectively to lead and
control our enterprises.
The period of the past 3 years, during which the state bank has controlled
the interest-rate policy, has been one of turning from reconstruction of the
national economy to development of the national economy. During this period,
the management of our enterprises has turned from the old blind, extravagant,
independent system to the new planned, rationalized, and collective system of
management. At the same time, deposits have been converted from parity de-
posits to currency, from current to fixed, and from short-term to long-term.
The interest-rate policy, in combination with other economic policies, has had
decisive effect in bringing about these changes.
The attached charts show the changing interest rates on private loans and
deposits of the Shanghai State Bank since liberation.
1.
Changing Interest Rate on Private Loans of
Shanghai State Bank Since Liberation
(Figures in yuan indicate monthly charge per 1,000 yuan)
Adjustment Date
Public Utilities
Industry
Communications
Education
Commerce
Agriculture
1949
30 Jun
150
150-210
240-300
18 Jul
250
250-350
400-500
11 Aug
200
200-300
320-400
22 Aug
150
150-210
240-300
11 Nov
300
300-400
500-600
24 Nov
6oo
600-8oo
1,000
7 Dec
450
450-550
700-800
16 Dec
360
360-450
600
21 Dec
270-360
270-360
450
1950
1 Jan
270
270-360
450
9 Jan
180-240
180-240
300
16 Mar
150-180
150-180
240
5 Apr
144
144
180
144
6 Apr
120
120
150
120
13 Apr
112
112
140
112
14 Apr
110.4
110.4
138
110.4
15 Apr
108
108
135
108
17 Apr
100.8
100.8
126
100.8
18 Apr
96
96
120
96
19 Apr
91,2
91.2
114
91.2
20 Apr
86.4
86.4
108
86.4
21 Apr
81.6
81.6
102
81.6
22 Apr
76.8
76.8
96
76.8
24 Apr
72
72
90
72
25 Apr
67.2
67.2
84
67.2
2 May
62.4
62.4
78
62.4
5 May
57-6
65
72
57.6
8 May
55-2
62
69
55.2
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Public
Adjustment Date Utilities
Industry
Communications
Education
Commerce
Agriculture
1950
10 May
45.6-55.2
51-62
57-69
45.6-55.2
11 May
38.4-48
43-54
48-6o
38.4-48
13 May
31.2-38.4
35-43
39-48
31.2-38.4
15 May
24-31.2
27-35
30-39
24-31.2
21 May
24
27
30
24
1 Jul
24
27
30
18
21 Jul
24
27
30
21
21 Nov
24
27
30
16-18
1951
3 Jan
24
27
30
16-18
1 Mar
27
27
30
18
16 Jul
27
27
30
18
1 Aug
25.50
24
25.50
18
16 oct
25.50
24
25.50
18
1952
1 Jan
25.50
24
25.50
18
1 Mar
25.50
24
25.50
18
15 Mar
24
22.50
24
18
17 Mar
23
22
23
18
21 Mar
25 Jun
23
(See Chart Iv)
22
23
18
II. Changing Interest Rate on Private Deposits in Shanghai State
Bank Since Liberation
(Figures in yuan indicate monthly interest per 1,000 yuan)
Adjustment Date Given Deposit
1949 30 Jun
18 Jul
11 Aug
22 Aug
11 Nov
24 Nov
7 Dec
16 Dec
21 Dec
1950 9 Jan
16 Mar
1 Apr
3 Apr
5 Apr
6 Apr
11 Apr
13 Apr
14 Apr
17 Apr
19 Apr
21 Apr
25 Apr
5 May
10 May
12 May
13 May
15 May
19 Jun
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STAT '
1951 1 Jan
16 Jul
1952 1 Jan
21 Mar
25 Jun ( See Chart III)
7
6
5.1
4.5
4.5
III. Interest Rates on Private Deposits in Shanghai State Bank
(25 June 1952)
Items
1. General Deposits
Current
Fixed period of 1 no
2. Savings Deposits
Current
Lump deposit, lump with-
drawal after 1 month
Lump deposit, lump with- .90
drawal after 3 months
Lump deposit, lump with-
drawal after 6 mo
1.05
Lump deposit, lump with-
1.20
drawal after one year
and longer
Deposit of principal for
payment of interest
3-mo period
6-mo period
One year
Same for fixed period
of 2 no
Same for periods above
3 mo
Old rate was 1.05%; same
for fixed period of 2
no
Old rate was 1.35%; same
for fixed periods of 4
and 5 no
Old rate: 1.35%; same
for 7-11 mo
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3. Finance Business
Deposits
Joint deposit
reserve fund
.60 Old rate: 1.05%
.6o Old rate; .90%
Transfer deposits Add 20% to monthly
interest rate for
general deposits
IV. Interest Rates on Private Loans of Shanghai State Bank
(25 June 1952)
1. Secured Loans to
Industrial, Communi-
cations, Education and
Health Enterprises
2 months
3 months or longer
2. Secured Loans for Trade
1 month
2 months
3 months and longer
3. Bills of Exchange
4. Import Loans
5. Export Loans
6. Large Scale Water
Conservation Loans
7. Small-Scale lister
Conservation Loans
1.05 to 1.35 Old rate for less than
3 months: 2.1%; for 3
months and longer: 2.2%
1.5 to 1.65
1.35 to 1.65
1.65 to 1.80
1.8 to 1.95
1.35
1.5
1.35
?75
Old rate for less than
1 month: 2.2%; for 1
month and longer: 2.3%
Old rate: 1.95%
Old rate: 1.95%
Old rate: 1.8%
8. Urban Handicraft Industry Same rate for indus- Old rate also same as
Loans trial loans that for industrial
loans
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Item Monthly Interest Rate (~)
9.
?rivate Agricultural,
Forestry, Fishing
Same rate for industrial
loans
Old rate also same as
that for industrial
and Livestock Loans
loans
10.
Marketing of Marine
Products
1.35
Old rate: 1.5%
11.
Industrial Association
Call Loans
1.5
Old rate: 2.4%
1. Whenever a loan is secured on a deposit certificate of the bank, the
interest will be computed according to the above listed interest rates, pro-
vided that it is at least 10 percent above the interest rate paid on the
original deposit.
2. The renewal interest rate on an extended loan will be calculated for
the period beginning with the date of the loan and extending up to the new
due date. For example, if the original term of the loan is one month and it
is extended over another month, the renewal interest rate will be that for a
2-month period.
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