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Lending slump in Wenzhou

By Chen Dujuan (Global Times)

08:09, May 14, 2012

Private lending in Wenzhou, a city in East China's Zhejiang Province well-known for the vitality of its private enterprises, has fallen by around 30 percent compared with last August, Xinhua reported yesterday, citing an unnamed official at Wenzhou banking regulatory bureau.

A survey conducted by the bureau also found that loans from individuals have fallen by more than half since last August, the report said.

Courts in Wenzhou have accepted more than 22,000 cases related to private lending disputes since August, a daily average of nearly 100 cases, according to the survey.

Between August and late March, more than 800 financial intermediaries in the city had closed, said the banking regulator.

"The current scale of private lending in Wenzhou has fallen by about 30 to 40 billion yuan from last year back to the level of 2010 at 80 billion yuan," said Zhou Dewen, president of Wenzhou Council for the Promotion of Small and Medium-sized Enterprises (SMEs).

"It is not because the market doesn't need the capital, but because more people are unwilling to put their money into the risky private lending sector," Zhou said.

Many individuals who used to participate in private lending have withdrawn their money after scores of managers at private companies in Wenzhou were reported to have declared bankruptcy, fled or committed suicide as credit conditions got tougher last year.

Meanwhile, Wenzhou's banking sector has seen a slump in profits in the first quarter of 2012. The non-performing loan (NPL) ratio at Wenzhou's financial institutions has been rising for nine months and at the end of March it reached 1.99 percent, the highest level since 2005, according to a recent statement from the Wenzhou banking regulator.

"The rising NPL is just as expected, as the risk in the private lending sector has extended to the banking sector," Zhou said, noting that some SMEs that used to borrow money from private lenders are now finding it harder to get the capital they need to repay their bank loans.

The most important thing is for the local government to regulate the private credit system, said Zhou.

A private lending registration service center was inaugurated on April 26 in Wenzhou to serve as an intermediary between borrowers and lenders, after the State Council set up a pilot zone in the city in late March to help regulate private financing.

Zhou, also a deputy of the National People's Congress, said that a comprehensive legal system is the key to regulating the private lending sector and he submitted a legislative proposal to the National People's Congress in March.

Regulators also need to educate individuals on the risks of private lending, said Luo Yuding, deputy dean of the business school at Shanghai University of Finance and Economics.

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