Rates to be fully freed in 2 years

The fund will be supported by the central government and financial institutions. "The banking industry has reached a consensus that individual clients will receive full compensation for deposits below 100,000 yuan if a deposit institution goes bankrupt," he said. Li Jianjun, deputy dean of school of finance at the Central University of Finance and Economics in Beijing, said the banks should improve managing their short-term capital via the interbank lending market to ensure financial stability when they begin varying their rates in fiercer competition for deposits — especially current-account deposits. He said that the banks "strengthen their management of short-term liabilities, estimate more frequently the degree of sensitivity of the loan-deposit gap to interest rates and readjust their asset structure to match debt maturity to asset life".

Many experts agreed that the rise of Internet finance has significantly accelerated the process of China's interest rate liberalization. "The impact of Internet finance on bank liabilities is far beyond that of the capital market," said Wen, who estimated that about 2 trillion yuan of current-account deposits will be diverted to wealth management products offered on the Internet.

This will hasten more defections from traditional banks and affect their expected profit growth in 2014. The central bank has so far welcomed the burgeoning online financial service industry despite a recent CCTV commentator's call for a crackdown on the industry. Zhou, the PBOC governor, praised "market forces" — including "various types of emerging businesses" — for pushing forward China's interest rate liberalization.

"When the market seeks high-yield opportunities, interest rates may go up within a certain period. But in due time, the market will return to an equilibrium between supply and demand," he said. As for broadening the use of yuan in the world, Zhou said China is not ready to make a timetable or set a target for its speed. He noted that investors in the foreign exchange market have varying views on the trend of yuan versus US dollar. From the central bank's point of view, he said, "we do not need to take sides."