Commentary: Is China Headed for a Zero Interest Rate Era?
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On May 20, China’s “Big Six” state-owned banks kicked off another round of deposit rate reductions: Their one-year fixed deposit rates fell below 1%. While this may appear a modest adjustment, it likely marks only the beginning of a broader trend — one that could reshape China’s financial landscape in the years to come.
The logic behind this shift is sobering. Although some progress has been made in resolving the debt risks faced by provincial and municipal governments, many county-level government debts carrying high interest rates remain unresolved and continue to accumulate. In a high-interest environment, such debts can double within a few short years.
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- China's major state-owned banks reduced one-year fixed deposit rates below 1% as part of ongoing interest rate cuts amid persistent deflationary pressures.
- China faces over 240 trillion yuan ($33 trillion) in corporate and household debt, with annual interest payments exceeding GDP growth in recent years.
- Japan's prolonged experience with near-zero and negative interest rates is referenced as a possible path for China to address economic stagnation and deflation risk.
- China's Big Six State-Owned Banks
- China’s “Big Six” state-owned banks are the country’s largest commercial banks, playing a central role in the financial system. These banks include Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China, Bank of China, Bank of Communications, and Postal Savings Bank of China. They drive lending, saving, and overall financial stability, and their deposit interest rate policies significantly impact China’s broader economic and monetary trends.
- 1991：
- Japan began cutting interest rates in response to economic stagnation.
- 1999：
- Japan adopted a zero interest rate policy.
- 2000：
- Japan made an attempt to exit the zero interest rate regime, but it proved premature.
- 2006：
- Japan made another premature attempt to exit the zero interest rate regime.
- 2013：
- Japanese government shifted to a macroeconomic strategy focused on ultra-loose monetary policy, including large-scale purchases of government bonds.
- 2016：
- Japan set the key policy rate at -0.1%, entering an era of negative interest rates.
- 2016–2024：
- Japan maintained negative interest rates for eight years, which finally pulled the economy out of deflation.
- May 20, 2025：
- China’s 'Big Six' state-owned banks began another round of deposit rate reductions, with one-year fixed deposit rates falling below 1%.
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