The move is considered an important one in the drive to strengthen and diversify mainland banks in the face of growing overseas competition.

China's big commercial banks currently pay 1.98 percent interest on one-year renminbi accounts.

In a trial that began in March, the central bank is letting interest rates float at eight rural credit unions in Zhejiang, Heilongjiang, Jilin and Fujian provinces and the Inner Mongolia Autonomous Region.

"By offering a 10 percent higher interest rate than other lenders, we have seen a two-digit percentage rise in our deposit business since March," an official of the Rui'an Rural Credit Union in Zhejiang said.

Xie Rongliang, an official of the People's Bank of China, the country's banking regulator and central bank, said, "It is certain we will widen the trial."

Xie declined, however, to say whether there is a timetable for when big commercial banks will be allowed to set their own interest rates.

Interbank rates already float. The National Interbank Funding Center, established in Shanghai in the late 1990s, makes it possible for banks to lend and borrow money at variable rates and to trade such financial products as treasury bonds.

Given the center's success, China may be able to liberalize interest rates within two years, industry insiders said.

They made the prediction at the "The Future of Banking in China Conference 2002," which opened yesterday in Shanghai's Pudong District.

The three-day conference, which has attracted more than 400 government and bank officials, is co-sponsored by the Shanghai Banking Association and The Asian Banker, a Singaporean publishing and consulting company.

Another topic widely discussed yesterday was diversification.

The regulator recently let some domestic commercial banks conduct a wider range of so-called intermediary businesses, such as over-the-counter trading of treasury bonds and the sale of foreign exchange to local residents.

Even so, time and demand deposits still provide almost 90 percent of the funds taken in by mainland banks.

"The high deposit ratio is not good for banks or the national economy," an official of the Shanghai-based Bank of Communications said.

(Shanghai Daily August 15, 2002)