Private lending in Wenzhou, Zhejiang, a seedbed for private businesses over the past three decades has plunged since a credit crisis almost crippled the local economy, city data shows.
An official with the city's banking regulator told Xinhua yesterday that a recent survey found that private lending had fallen 30 per cent since August. The report, which did not provide the figures in yuan, also said loans from individuals fell as much as 50 per cent.
'Private creditors dare not lend out money and would rather deposit it in the bank after a large number of businessmen violated agreements or just ran away last year, as they couldn't pay their debts,' said Xiang Songzuo, chief economist for the Agricultural Bank of China.
The Wenzhou survey also showed local courts have accepted more than 22,000 cases concerning private lending disputes since August, an average of nearly 100 a day. More than 800 financial intermediaries, which were thriving until recently, had closed by late March, the official said.
During last year's credit crunch, about 100 private company bosses in Wenzhou are believed to have disappeared, committed suicide or declared bankruptcy, invalidating debts worth about 10 billion yuan (HK$12.3 billion), Xinhua said.
'Private lending in Wenzhou is shrinking rapidly,' said Xiang, who recently visited the city for a seminar on the industry. He said that in addition to concerns about the risks, the demand for private lending from local businesses was also decreasing amid a downturn in factory orders.
In March, the State Council announced plans to formalise Wenzhou's 'grey' lending industry and make the city a proving ground for potential financial reforms.