The Chinese government announced on Tuesday that it will implement1 the long-awaited bank deposit insurance scheme in Ma

The Chinese government announced on Tuesday that it will implement1 the long-awaited bank deposit insurance scheme in May, taking a key step in the country's financial reform.


From May, financial institutions will be required to pay insurance premiums2 into a fund that will be managed by an agency appointed by the State Council, according to a statement posted on the government website. 

 

The scheme is designed to return bank clients' deposits if their bank suffers insolvency3 or bankruptcy4. The reimbursement5 will be drawn6 from the new fund in the case of the deposit being 500,000 yuan (81,433 U.S. dollars) or less, which applies to 99.63 percent of Chinese depositors, said the statement. 

 

Banks will pay indemnity7 with their own assets to those who have deposited more than 500,000 yuan. 

 

A later statement quoted an unnamed official as saying, "The scheme will help build public confidence in the financial market, straighten the relationship between government and the market... and maintain financial stability."

 

Deposit insurance schemes are an important part of any financial safety net. The scheme has long been considered a precondition for China to free up deposit rates -- the last step in interest rate liberalization.

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