It has been more than 20 years since China started interest rate liberalization reform. Interest rate liberalization, one of the most important contents of the nation's economic restructuring reforms, started in 1996 when the central bank freed the Shanghai Interbank Offered Rate.

It achieved major progress from 2003 to 2004 but then slowed afterwards as the monetary policy had to focus on curbing the excessive liquidity from the fast-booming foreign exchange reserves. Since 2012, interest rate liberalization has accelerated again, and now the central bank's control has been almost removed.

The key to raising the efficiency of resource allocation is to let the market decide the price of production factors, including the price of financing or capital. The price mechanism will allocate social funds to the most effective sectors of the national economy, which will benefit the country's overall economic development and help improve people's living standards.

Interest rate liberalization is an important way to diversify financial products. As the economy develops, demand for financial resources has become highly diversified. Differentiating the prices of financial products through the reform is necessary to satisfy the various demands.

Interest rate liberalization will provide the basic conditions for the monetary policy transformation from a "quantitative model" to a "price model". It means that interest rates will reflect the real market situation and be an effective tool to affect monetary policy, as well as the economy.

As long as the administrative control on interest rates is removed, commercial banks will satisfy their clients' demands and deal with the competition pressure in a more independent and market-oriented way.

In the initial stage of the reform, the commercial banks might lack awareness of how to set the rates, and they may rely on the central bank. However, as the reform has been a long progress, commercial banks are prepared for that.