Wenzhou mayor seeks central govt help for reforms (2)

He said the major challenge is making the previous underground banking system "exposed to the sunshine", or putting it within a legal framework.

But Chen was also frank about the difficulties: still reeling in the aftermath of the previous financial crisis, private lenders with abundant cash were reluctant to lend money, fearing the previous "borrow, trapped, run away" scenario will recur.

"Most of them are still holding a wait-and-see attitude. They will not lend out their money unless a sound institutional environment is built. But this takes time," Chen said.

He said the government will foster more intermediary agents such as credit-rating agencies, equity trading centers and financial arbitration agencies.

Chen also suggested the Credit Reference Center set up by the People's Bank of China, the country's central bank, be open to small-sum loan companies.

Currently, the credit information in the reference center does not contain much information on SMEs and is not available to small private lenders. They will have to turn to more expensive private credit reference centers if they want to get information about their borrowers.

Chen, a deputy to the National People's Congress, the national legislature, also has submitted a motion that asks the State to allow individuals to invest outbound directly, a bold move under China's current capital account management system.

Chen's proposals were echoed by private entrepreneurs from Zhejiang during the ongoing NPC session.

Zheng Jianjiang, president of Aux Group, an electrical appliance manufacturer and an NPC deputy, suggested that the nation should give the small-sum loan companies "financial institution" status.

"The current small-sum loan companies are ordinary companies registered under administration for industry and commerce, not financial institutions. This means that fraud and abuse of power by staff in small-sum loan companies could not be investigated for criminal responsibility, as it does in financial institutions," Zheng said.