The budget discipline of enterprises has evolved from a soft budget constraint in the 1980’s to a much harder one now. Further progress in this regard will have a bearing on the development of NPLs. 2. The development of NPLs will be closely related to progress in market-based interest rate reform.
You may have noticed that many of the Party and government documents have listed gradually moving toward market-based-interest rates as one of the directions and objectives of financial reform. Although in the recent past the bands of interest rates fluctuation have gradually widened, they are not determined solely by market conditions.