BEIJING – A deposit insurance network will be establish this year as part of the government's efforts to promote market-based interest rates, Ma Jing, governor of the Guangzhou branch of the People's Bank of China, said on Friday.

"The deposit insurance system is a must for interest rate liberalization. Setting up such a system doesn't necessarily mean that credit backup from the Chinese government to lenders will fade away,” Ma said.

Ma is also a member of the Chinese People's Political Consultative Conference (CPPCC).

Deposit insurance protects depositors from losses caused by a bank's inability to pay its debts when due and is one component of a financial safety net that promotes financial stability.

Local media have reported that the central bank has already finished drafting rules governing deposit insurance and will announce the establishment of the system before gradually implementing detailed policies.

Some analysts have worried that market-oriented interest rates will widen performance gaps among banks and harm the economy because lending rates may rise as long as State-owned banks have bargaining power due to their near-monopoly position.

"Currently small and medium-sized enterprises cannot get loans easily. But once the interest rates are liberalized, some of them may not get loans at all - that's a tough dilemma facing the central bank at present," Ma said.