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China to introduce bank deposit insurance system

China's cabinet has issued draft regulations to launch a bank deposit insurance system in an effort to liberalize interest rates and enable banks to compete commercially.

Issued by the Legislative Affairs Office of the State Council, the draft rules directly cover deposits of up to CNY500,000 ($81,395), as published by the People’s Bank of China on its website.

State media reports said the Deposit Insurance Act (DIA), which is expected to commence in early 2015, will cover the entire 99.63% bank savings of all depositors.

According to the draft document, the scheme will, however, not include foreign bank branches operating in the country, along with the overseas branches of Chinese banks.

In order to pay for the scheme, all banks under the system will have to set aside capital, which would be collected by the Central Bank of China.

The capital will also be administered by a deposit insurance fund. This fund will be allowed to invest in government bonds, central bank notes, as well as financial bonds.