The People’s Bank of China (“PBOC”) released a white paper on August 31, expressing its intention to adopt the Depository-Institutions Repo Rate (“DR”) as the alternative substitute rate in the Chinese banking market. Several pricing indicators were used in Chinese banking market, including Repo Rate (“R”), DR, Fixing Repo Rate (“FR”), General Collateral Repo Rate (“GC”), Loan Prime Rate (“LPR”), China Interbank Offered Rate (“CHIBOR”) and Shanghai Interbank Offered Rate (“SHIBOR”). The white paper discusses the possibility of these indicators as alternative substitute rate and concludes that amongst these, DR has become the most important indicator amongst such rates in the PRC lending market. According to the white paper, DR is the indicator which best reflects the liquidity condition and financing interest rates in the banking system, and is already widely accepted by the market.

PBOC has indicated in the white paper that it will adopt several measures to promote the future calibration and development of use of DR: including (a) PBOC will encourage the issuance of floating rate debts referencing DR (simplifying the approval procedure and expediting or prioritizing processing of floating rate debt using DR); (b) it will promote interest rate swap transactions referencing DR; (c) it will encourage financial institutions to reference DR in the interbank transactions; (d) it will encourage international organizations to adopt DR as the interest rate calculation basis for RMB yuan; and (e) it will consider establishing term rates based on short-term DR.

Chinese banks have also established high level working groups to evaluate the impact of LIBOR transition and closely monitor international updates and contribute to the timeline and roadmap design of the LIBOR-DR transition in China.

According to a press release by Standard Chartered Bank on September 11, Standard Chartered Bank has closed the first cross-currency swap transaction referencing SOFR and DR. Wesley Yang, head of financial markets at Standard Chartered Bank China, said: “The initiation to promote DR as an effective interest rate benchmark for market transactions will play a key role in furtherance of China’s reform on interest rate liberalization, developing the derivatives market and improving the efficiency of China’s financial market in resource allocation.”


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