Wenzhou chosen to test legalized private lending under new rules
Print Edition
China will start testing the waters of legalized private lending today in the pilot city of Wenzhou, where a liquidity crunch in underground lending in 2011 caused a credit crisis.
Zhang Zhenyu, the city’s vice Party secretary and head of its finance reform office, said yesterday that detailed rules of the regulation, which were finalized this week, will take effect today along with the regulation.
The Wenzhou Private Financing Regulation, passed by the Zhejiang Provincial People’s Congress in November, says that enterprises in need of funds can borrow private loans via three kinds of intermediary agencies, including private capital management firms, financing information service firms and lending service institutions, which are still not part of the formal financial system elsewhere in China.
Wenzhou’s lending service institutions emerged in 2012 when the State Council, China’s Cabinet, approved a broad package of financial reforms allowing the city to serve as a test bed for liberalizing private lending, which had grown into a colossal underground industry, powered by the robust growth of the city’s private economy.
These institutions keep a record of lenders who lend over 3 million yuan (US$488,000) in a single private loan and collective loans with a combined value of over 10 million yuan.
There are now seven such service centers in Wenzhou. By December 12, 2013, they had registered private capital of 7 billion yuan, with 2.5 billion yuan in outstanding loans.
Wenzhou also has 11 private capital management firms, which specialize in offering financial services from private placement to project investment. By December, they had directed 2 billion yuan in private funding for investment in 618 commercial projects.
Zhu Zhongming, vice mayor of Wenzhou, said the city has set up an administrative system to regulate private financing activities. It comprised a financial management bureau, a financial arbitration institution, a financial crime investigation team and a court.
The new regulation, with seven chapters and 50 clauses, specifies regular private financing operations, risk control measures and legal liabilities.
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