Liberalization of interest rates:
PlaNet Finance: In your book “Inside China’s Shadow Banking: The Next Subprime Crisis”, you single out the government imposed deposit interest rate cap as the trigger for the next subprime crisis, because depositors are buying wealth management products, which are packaged high risk subprime loans in order to earn more on their deposits. You have advocated for the liberalization of interest rates in order to resolve the root of the problem. How do you think the government should do so in order to avert a potential crisis that might occur with the removal of the deposit ceiling cap?
Joe: I think the government can liberalize interest rates in two steps.
Step one: raise the deposit interest rates closer to market interest rate. How do we know what the market interest rate is? Look at the interest rates of wealth management products and trust products. They are in the range of5-10%. So the government should raise deposit rates slowly but steadily. It will certainly be safe to raise the rates by 1-2 percentage points. This way, most wealth management products will disappear. Is that not what the government likes to see?
Step two: after a few years of relatively high deposit rates, it will be easy to liberalize the deposit rates naturally and effortlessly. No shock. No panic.
Future of micro-financing in China:
PlaNet Finance: What do you think lies ahead in the future for microfinance in China?
Joe: I passionately love the sector but am cautious on the sector’s outlook. I am not very optimistic. The reasons are two: the regulation is killing the dynamism of the sector. Everyone in the sector is working extra hard to make a modest return (after huge expenses and bad debts). Secondly, the government is silly enough not to understand the ecosystem (such as data infrastructure). The current situation may continue for three to four years before we see some breakthrough.
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Joe Zhang is the Chairman of Slow Bull Capital based in Hong Kong, and also author of “Inside China’s Shadow Banking: The Next Subprime Crisis” and 避開股市的地雷。Zhang was Chairman of Wansui Micro Credit Company in Guangzhou, China, from 2011 to 2012, . He was named “Microcredit Person of the Year” in January 2012 by the Microcredit Association of China.
He started Slow Bull Capital in 2012. Before starting his own business, Zhang worked at investment banks. He was Deputy Head of China Investment Banking at UBS between 2008-11. From 1999 to 2006, Joe was co-head and head of China Research at UBS Securities Asia Limited. Prior to this, Mr. Zhang worked at the People’s Bank of China between 1986 and 1989. Zhang was chief operating officer of Shenzhen Investment (604 HK), a company listed on the Hong Kong Stock Exchange, between 2006-08.