A fully market-oriented lending mechanism has yet to be established for banks, but calls for financial reforms that should allow failed banks to go bankrupt have remained very high. This means commercial banks themselves, rather than other institutions, have to face the consequences of their actions. In this sense, the failure of commercial banks to follow the central bank's "window guidance" should be seen as a positive development toward marketization of the lending business, and so should commercial lenders' refusal to be used as an unconditional policy tool.

The current interest rate marketization in the country is limited to lending rates, and a rigid management regime is still imposed on deposit rates. Such a half-hearted marketization is beneficial for commercial lenders but puts borrowers in a disadvantageous position. People will be forced to accept high borrowing rates imposed by commercial banks and won't have negotiating chips while depositing their money in banks. This arrangement needs to be changed.

In the final analysis, the commercial banks' response (or non-response) to some extent may be an embarrassment for the central bank, but this is a common practice in a fully marketized economy. As the top monetary regulator, the central bank should focus on how to guide commercial banks to prevent financial risks rather than impose conditions on their micro activities.

The author is a Shanghai-based commentator on the economy.

(China Daily 06/07/2014 page5)