F OR A CASE study in the complexity of transitions from central planning, consider the knotty mess that is China’s interest-rate system. More than 40 years after Mao Zedong died, the country is an economic superpower, yet it still struggles to manage bank lending using interest rates, rather than through heavy-handed interventions such as credit quotas. To make this shift, the central bank has created a dizzying array of instruments. S & P Global, a rating agency, counts 20 separate monetary-policy tools in China, from newfangled liquidity-injection facilities to old-fashioned instructions to banks; America, by contrast, has just six main instruments.

Now China has modernised its arsenal with a new benchmark interest rate, unveiled on August 16th. The Loan Prime Rate ( LPR ), as it is known, will become the reference rate for banks pricing corporate loans. Announced monthly, it will be the average of what 18 designated commercial banks charge their best corporate clients, expressed as a spread over the banks’ own cost of borrowing from the central bank.

In theory this should make Chinese lending rates more responsive to financial conditions. Under the previous system, banks priced loans from a one-year lending rate set by the central bank. It has refrained from changing that rate since 2015, concerned, in part, that investors would over-react. It does, however, regularly tweak liquidity levels, and has bemoaned the fact that its cautious easing in recent months has not translated into lower borrowing costs in the private sector.

For industrial firms real (ie, inflation-adjusted) interest rates have instead climbed from an average of less than 1% last year to more than 4% this year (see chart). Officials say the LPR will lessen the strain on companies. On August 20th, the day it went into effect, the rate was set a tenth of a percentage point below the previous benchmark, a marginal cut.