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Higher interest rates needed to build long-term financing mechanisms

the next few years, China will be faced with a sort of monetary and financial environment? With solid financing interest rate rises, money seems to be becoming more and more expensive in China, how to solve this dilemma for China's future development is of great significance.

nearly two months since the inter-bank market experienced a similar June interbank offered rate (Shibor) rise sharply, funds in the interbank market significantly tightened. Ten-year bond yields rose sharply, even more than 4.7% at the end of November, only to 2007-2008 levels, once more approaching 2004 highs. Homeopathy also float in corporate bond yields, further affecting the financial markets, including policy banks and other financing schemes, push up the average market cost of financing.

from the perspective of global liquidity environment, the Fed's monetary policy Monetary liquidity, China becomes the biggest external variables. Regardless of whether the Federal Reserve will be reduced in 2014, quantitative easing, is undeniable, United States quantitative easing has been basically completed the historic mission of the response to the financial crisis, from non-conventional monetary policy it is imperative to return to routine.

according to United States Congressional Budget Office (CBO) predicted that United States ten-year bond yields may be above the 5% level in the next five years. With global interest rates is based on United States interest rates as the benchmark system, over the next few years United States real interest rates trend upward, the global low interest rate environment is likely to end in a few years, which will significantly raise the overall level of interest rates in China.

judging from China's internal variables, with the advancement of marketization of interest rate and interest rate rises would be an irreversible process. International experience shows that the marketization of interest rates early, both developed and developing countries, interest rates generally rise.

marketization of interest rates brought about by the increasing resource allocation efficiency, side is the real sector rising financing costs, China is facing a financial dilemma of the reforms. In fact, since 2013, entities such as manufacturing sector facing rising labor costs, fund prices and excess capacity "three big mountains" repression, national business average rate of industrial enterprises above the designated size around 5.2%, but city investment bond, shadow banking or banking product yields of up to 8%-15%, resulted in the virtual economy and real profit gap continued to expand. 2013 show that listed company interest expense EBIT (earnings before interest and taxes) is about 31%,ROIC of (return on invested capital) and the cost of capital upside down in serious condition.

since June this year, the Central Bank to regulate market liquidity, lower market interest rates, also carried out a number of operations on the open market and innovation, such as the standing lending facility (SLF), but the effect is not obvious, reason is that relative to the corporate entities such as departments, local governments and real estate sector is not sensitive to rising interest rates. Strong local government financing demand will inevitably on the real financing large extrusion effect.

, cracking the rising trend of interest rates in China must be careful: on the one hand, it must develop inclusive financial, such as micro-finance and technology, financial, supply chain, finance, finance serve the entities, improve the efficiency of resource allocation.

, on the other hand, should focus on the construction of long-term mechanism of local government financing: one is the stock assets. Local government stock assets, such as roads and bridges, tunnels, water works, allocated to the corresponding investment group, into the fixed assets of investment and finance group.

Second, establishment of local "bad Bank". We recommend the "bad Bank" is mainly responsible for the local debt and non-performing assets disposal, it purchases should take the form of debt restructuring for the disposition of bad assets, you can transfer.

property rights trading market is to build infrastructure, improve the withdrawal mechanism of local government investment projects in order to withdraw from the part of local State-owned shares, stimulating local-government financing platforms assets through the asset securitization and other financial means of raising funds for new projects.

four is the establishment of a special account for public benefit. Could be considered part of the city investment bond into municipal revenue bonds, utility class city investment bond is the proceeds of municipal bonds, and to establish a special account in the budgets of local governments, which radically reduced government funding for Community financing, in particular the real sector financing needs of extrusion.