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People's Daily Online>>China Business

Pilot reforms to allow more private loans

By Zhao Qian (Global Times)

08:28, April 05, 2012

Premier Wen Jiabao's pledge that the government would break financial monopolies was applauded by economists, who noted the pilot scheme in Wenzhou, Zhejiang Province highlighted by Wen could serve as a model.

"The pilot program in Wenzhou is a big improvement for the financial sector and could ensure more small- and medium-sized enterprises (SMEs) and individuals get access to limited loans," Chen Zhiwu, an economist at Yale University, told the Global Times.

"The pilot program will legalize some private lending companies, known as shadow banks, and let them see the sunshine," Chen added.

At a roundtable with executives from private companies in Fujian Province on Tuesday, Wen said some of the large banks in the country gain profits "too easily" and operate as a monopoly, leading to borrowers having difficulties in acquiring credit loans from other channels.

"The central government is firm about clearing up monopolies in the financial sector to allow in private capitals. Successful experiences gained through the pilot program in Wenzhou can be adopted nationwide," Wen said.

The government announced at the end of March that it will allow private lenders in Wenzhou, whose legal status has been in limbo, to operate credit firms targeting SMEs.

The "shadow" banking system, which came to prominence in 2011 following the government's tightening of liquidity, charges higher rates than conventional banks, but also offers loans to many who would otherwise be refused credit.

In the first 10 months of 2011, the total amount of private lending was at around 3.8 trillion yuan ($603.37 billion), according to a report by China International Capital Corporation.

"Those large banks prefer offering loans to State-owned companies, whose repayment ability is considered to be guaranteed, while the SMEs have no access to limited credit loans and have to turn to private creditors," Chen noted.

Ma Weihua, director of the China Merchant Bank, said Tuesday at the Boao Forum for Asia in Hainan Province that one of the key factors for the success of Wenzhou's financial pilot program is the marketization of loan rates.

Currently the government has established a ceiling on interest rates for commercial banks, while the micro-credit companies are legally able to charge up to four times the central bank's base rate.

Ma noted that the interest rates should be adjusted by the demand and supply of the market,.

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