GENEVA, July 18 (Xinhua) -- Some international research institutions apparently mischaracterize financing from China's commercial banks as subsidies, primarily because they rely on benchmarks detached from market realities in developing countries, leading to misleading conclusions, observed an article published recently on the World Economic Forum (WEF)'s website.
Industrial policy reports published recently by international organizations such as the Organization for Economic Co-operation and Development (OECD) have argued that Chinese commercial banks provide massive "below-market" financing to Chinese enterprises, and cited this as evidence of large-scale industrial subsidization in China, said the article, co-authored by Yang He, secretary-general of the China Modern Finance Society, alongside three other experts.
However, the authors argue that these studies often select "market benchmarks" that fail to reflect the actual conditions of China's financial system and commercial lending practices, and corporate borrowing secured at rates below these artificial benchmarks is presumed to entail a subsidy.
For instance, the article points out, equating China's Loan Prime Rate (LPR) with a risk-free benchmark leads to the flawed assumption that any loan rate below the LPR is inherently below-market. In reality, the LPR serves merely as a reference rate for loan pricing, and commercial banks apply differentiated pricing by adjusting spreads based on the specific profiles of the borrower. A loan rate lower than the LPR is much more likely to reflect the borrower's low credit risk or high-quality collateral, rather than the existence of preferential policy treatment.
Furthermore, they noted that applying the OECD's methodology to a sample of U.S. corporate bond issuers yields similarly widespread "below-market" financing results, further demonstrating that the choice of benchmark fundamentally skews the conclusion of whether financing is subsidized.
By reconstructing a more comparable market benchmark tailored to the realities of China's financial markets and corporate sector, the article found that the average financing cost for the sampled enterprises was actually 0.2 percentage points higher than the market benchmark. Additionally, the profitability of major Chinese commercial banks matches -- and in some cases exceeds -- that of their major peers in the United States, Europe and Japan, which demonstrates an absence of any systemic sacrifice of profitability to provide "below-market" financing, the authors note.
The authors conclude that adopting more rational and appropriate market benchmarks is essential to improving the accuracy, credibility, and fairness of international subsidy assessments. ■
