This marks a stride by China toward a market oriented interest rate regime. As we know, the mechanism of demand and supply of credit capital is usually distorted when the interest rate is strictly controled. This is especially true for the financing of small and medium businesses. Banks have to find vents for their excessive idle fund while SMEs are beset with the difficult access to capital.

Without enough power on pricing, banks normally prefer large enterprises with relatively better credit records out of safety consideration and keep indifferent to SMEs whose performance is not sound and credit status is hard to track.

In addition to this, opportunities for SMEs to raise fund through other channels are also limited. As a result, illegal fund raising and deceitful financing through illegal channels keep taking place.

The fundamental solution to the problem is a market driven interest rate system. Under a market economy, risks vary either among borrowers or projects. When lenders are empowered to decide proper interest rate on the consideration of risks and costs involved in a loan, they will be motivated to expand their services to SMEs. And only in this way will the safety, profitability and liquidity of credit assets are all taken care of.

It is fair to say that China has been pushing its reform on interest rate mechanism ahead steadily in recent years. The range in which the interest rates for loans extended by financial institutions has been further broadened from January 1 this year. Many lenders have begun to take the advantage of the policy to conduct pricing to make up for the credit risks.

However, the official ceiling remains much lower than that in private borrowing deals between individuals. The market was not given a full play. This situation has finally ended in this round of policy adjustment when the central bank decided to remove the ceiling. For SMEs, more credit is expectable when their lenders are much less fettered.

A market oriented interest rate system makes sense more than that. The loans pricing based on the principle of the trade-off between the returns and risks helps the rational mobilization of financial resources through preference for solid applicants to fragile ones.

In the mean time, when prices serve as an indicator of the policies of macro0control and structural optimization, a so called "one-cut-for-all" or "a sudden halt" will be avoided.

What's more, the new policy gives more chance for Chinese financial institutions to build up their experience on financial products pricing. It is time for them to sharpen their ability in pricing, especially the pricing of loan products.

The possibility of the interest rate of deposits floating downward helps to improve the micro-system for the transmission of monetary policy, prompt financial institutions strengthen their management of their balance sheet, and expand capital sources of the capital market.

There is no doubt that China's progress on a market oriented interest rate system will be a catalyst to the county's financial system.