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Wenzhou to pilot private investment overseas (2)

By Gao Changxin (China Daily)

08:25, March 29, 2012

Earlier this month Wen told a news conference after the National People's Congress that the government was considering an overhaul of legislation that banned private fund-raising by businesses and individuals.

The comments came in response to a question about private fund-raising and the case of Wu Ying, a businesswoman who faces execution for illegally raising 770 million yuan ($123 million). The case is awaiting final review by the Supreme People's Court.

Wenzhou was selected for the pilot project after local debt-laden entrepreneurs, unable to repay debts, fled the city last year when State-owned banks reduced lending to small and medium-sized enterprises (SME) amid credit-tightening measures by the central bank.

SME proprietors frequently complained about discriminatory treatment from large banks because of their fewer assets and lack of credit records.

To keep business running, many Wenzhou SMEs had to resort to seeking underground credit with exorbitant interest rates, sometimes as high as 90 percent.

As a result, financial institutions in Wenzhou reportedly saw their non-performing loans surge nearly fourfold.

These loans amounted to 11.24 million yuan by the end of February, up 19 percent month-on-month, China Business News reported, suggesting that the current economic slowdown and flagging property market were leading to still more defaults.

The pilot program will "set free the power of Wenzhou's private capital," said Zhou Dewen, chairman of Wenzhou SME Development Association. "What we will see will be a new growth cycle of non-State sector investment and financial services."

At the same time, Ye Tan, an independent financial commentator, said letting citizens invest directly overseas would also help ease the plight of entrepreneurs.

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