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Private lending drops in Wenzhou after credit crisis


08:26, May 14, 2012

Private lending in Wenzhou, a city known as the cradle of China's private businesses, shrank by 30% compared with August last year after a credit crunch almost crippled the local economy, according to a survey conducted by the city's banking regulator.

An official with the eastern city's banking regulatory bureau told Xinhua on Sunday that their recent survey showed that the current private lending scale was 30% smaller than it was in August.

Loans coming from individuals even dropped by 50% compared with August, said the official.

The survey also revealed that courts in Wenzhou have accepted over 22,000 cases concerning private lending disputes since August, a daily average of nearly 100 such cases, said the official.

As of late March, over 800 financial intermediaries have closed after thriving in recent years, said the official.

During last year's credit crunch, about 100 managers or heads of private companies in Wenzhou were reported to have disappeared, committed suicide or declared bankruptcy -- invalidating debts worth about 10 billion yuan ($1.58 billion).

The crisis raised concerns about private financing risks, an issue that has become particularly relevant in Zhejiang province, which governs Wenzhou and where private businesses have become a pillar of the prosperous local economy.

More than half of 2,835 companies surveyed in Zhejiang last year have sought financial help from private creditors, as banks are typically unwilling to lend to smaller companies.

In late March, the State Council, China's Cabinet, announced plans to set up a pilot zone in Wenzhou to regulate private financing activities in order to "effectively sort out Wenzhou's problems and make financing serve the real economy," according to a central government statement issued at that time.

As part of the pilot scheme, a private lending registration service center was inaugurated in late April in Wenzhou to serve as an intermediary between borrowers and lenders in an attempt to standardize private lending in the city.


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