Private lending market highlights China's household finance dilemma (3)

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HOUSEHOLD FINANCE DILEMMA

Private lending persists for a reason.

According to data released by Shenmu finance office, private enterprises and individual businesses reached 3,030 and 24,949 respectively in 2012. As private enterprises and investment increased, the conventional banking system failed to meet the fund demand.

The local county government speculated that there is 70 billion yuan of private capital in Shenmu at present. However, this money cannot find a better way out.

"Since the financial crisis in 2008, private enterprises have been facing more difficulties," said Gao Haixiong, deputy director of the county development and reform bureau.

Limited by a high credit threshold, many private companies cannot get bank credit support. "After the outbreak of the credit crisis in Shenmu, residents declined to lend money to private companies, whose situations were worsened," Gao said.

Zhang Wei, lawyer in Guojin law firm of Sichuan Province, said that the government should establish village, rural commercial and local banks to lead the investment of local people.

"We should encourage private enterprises to invest in the real economy. The rich should set a goal of being an entrepreneur rather than someone who only makes profits," said Ma Jianfei, a rural development expert with the Shaanxi Provincial Academy of Social Sciences.

He added that people in fast-growing areas should learn about financing and investing to help better manage their money.

Now the price of coal is coming back to earth. Out of 99 mines near Shenmu, only 11 are still operating.

"We put up banners on city streets warning residents of the dangers of participating in informal lending schemes last year, but most people could not resist the lure of big profits, especially when there was no better investment opportunities for them," said county head Huang Jianjun.

"It's a national problem, not just a local issue," he said. "It is time for us to make a difference."

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