Other non-professional banks' loans are about 70% operated truly according to market principles. Excluding the illegal banking market, nearly 60% of the loans in China are operating according to market principles. Of course, over two-thirds of the total loans from professional banks are loaned to state-owned enterprises that are weak in marketization.

Loans by power and loans by connections are commonplace, and loans are still managed by a centralized authority. Repayment on many loans is hopeless; in some cases, only interest can be collected but the capital cannot be recovered. The state banking sector as a whole is showing deficits.

The interest rate, as basic price of banking products, is decided by the government. Naturally there is a difference between the official interest rate and actual practice. According to investigation, the actual enterprise-loan interest rate is often 50% to 100% higher than the official interest rate; this extra is expressed as gifts from enterprises to banks, commission extorted by banks, banks taking part in enterprise profit-sharing, and complicated approval procedures.

This is a distorted marketization, against the market in nature. This also indicates that China's interest rate marketization level is very low, only half way, so there is still another half way to go before a full transition.

As for the People's Bank of China getting rid of the provincial branches and establishing 9 regional branches, it can be considered internal structural reform, and has a limited affect on the marketization of banking.

Looking at the structure of banks, the structure of funds, and the structure of interest rates in China, one can say that the marketization degree of China's capital market is around 40%, i.e., in the middle of transition. Based on this degree of marketization, by end of the Ninth 5-Year Plan it may reach 45%, and 60% by end of the Tenth 5-Year Plan, and enter the late transition period.

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