Debt-crisis city chosen for financial reform trial
By Feng Jianmin |
March 29, 2012, Thursday
|
Print Edition
Print Edition
China is to launch a pilot financial reform program in Wenzhou City to formalize private lending and allow easier overseas investment.
The move is a bid to crack down on irregularities in the gray but flourishing underground money market in the eastern city, which has led to crime and heated public debate.
"In recent years, some of the small and medium-sized companies ran out of capital and some business owners fled," the State Council said in a statement after a meeting presided over by Premier Wen Jiabao yesterday.
"This has to some extent hurt economic and social stability. To regulate private financing and to increase the financial sector's contribution to the real economy is important to both Wenzhou ... and the whole country," the State Council said.
Wenzhou's financial authorities are told to set up a system to monitor private lenders, referring to informal money lenders outside the state-dominated banking system.
Private lenders will be encouraged to buy shares in rural banks and credit companies, eligible micro-finance companies could be transformed into rural banks, and private funds will be guided toward the establishment of venture capital and private equity activities as well as other types of investment bodies, according to the statement.
It also urged regulators to explore channels that can allow individuals to make direct overseas investment in a convenient and regulated way.
But the statement didn't mention long-proposed reforms such as liberalization of interest rates.
Wang Wei, a part-time professor with Cheung Kong Graduate School of Business, said the decision showed that the State Council has recognized the reasonability of private lending, and has emphasized the risk control responsibilities for local administrators. But it provides no ultimate solution to the problem, he said.
"The highlight of the decision is to allow changes in the financial system and provide experience for the country," Wang said. "The intelligence of Wenzhou private lenders is well beyond government regulations, and the most important thing for the country is to free and innovate the function of existent financial institutions."
Other economists doubted whether the regulation could properly oversee foreign investments made from Wenzhou.
The city's financial authorities first proposed the opening-up of foreign investment for individuals in January last year, but that was soon turned down by China's foreign exchange watchdog on concerns over uncontrollable cross-border capital flow.
Last October, the authorities proposed ways to regulate private lending and lift tight controls on interest rates as the city suffered from a Chinese version of the US subprime crisis with business owners fleeing after being unable to pay back debts, leaving thousands unemployed.
Later, it was discovered that many government officials had been funding Wenzhou's illegal lenders.
The move is a bid to crack down on irregularities in the gray but flourishing underground money market in the eastern city, which has led to crime and heated public debate.
"In recent years, some of the small and medium-sized companies ran out of capital and some business owners fled," the State Council said in a statement after a meeting presided over by Premier Wen Jiabao yesterday.
"This has to some extent hurt economic and social stability. To regulate private financing and to increase the financial sector's contribution to the real economy is important to both Wenzhou ... and the whole country," the State Council said.
Wenzhou's financial authorities are told to set up a system to monitor private lenders, referring to informal money lenders outside the state-dominated banking system.
Private lenders will be encouraged to buy shares in rural banks and credit companies, eligible micro-finance companies could be transformed into rural banks, and private funds will be guided toward the establishment of venture capital and private equity activities as well as other types of investment bodies, according to the statement.
It also urged regulators to explore channels that can allow individuals to make direct overseas investment in a convenient and regulated way.
But the statement didn't mention long-proposed reforms such as liberalization of interest rates.
Wang Wei, a part-time professor with Cheung Kong Graduate School of Business, said the decision showed that the State Council has recognized the reasonability of private lending, and has emphasized the risk control responsibilities for local administrators. But it provides no ultimate solution to the problem, he said.
"The highlight of the decision is to allow changes in the financial system and provide experience for the country," Wang said. "The intelligence of Wenzhou private lenders is well beyond government regulations, and the most important thing for the country is to free and innovate the function of existent financial institutions."
Other economists doubted whether the regulation could properly oversee foreign investments made from Wenzhou.
The city's financial authorities first proposed the opening-up of foreign investment for individuals in January last year, but that was soon turned down by China's foreign exchange watchdog on concerns over uncontrollable cross-border capital flow.
Last October, the authorities proposed ways to regulate private lending and lift tight controls on interest rates as the city suffered from a Chinese version of the US subprime crisis with business owners fleeing after being unable to pay back debts, leaving thousands unemployed.
Later, it was discovered that many government officials had been funding Wenzhou's illegal lenders.
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