Financing laws face overhaul

PUBLISHED : Thursday, 15 March, 2012, 12:00am
UPDATED : Thursday, 15 March, 2012, 12:00am


Premier Wen Jiabao said yesterday that the central government was considering an overhaul of laws that ban private fund-raising by businesses and individuals and may use the eastern city of Wenzhou as a testing ground for reforms.

Additionally, it should allow private capital in the financial industry, Wen said during a press briefing after the close of the annual parliamentary session of the National People's Congress.

The comments came in response to a question posed about private fund-raising and the case of Wu Ying, a businesswoman sentenced to death for 'raising funds with intention to defraud'.

Wu's case, which is awaiting final review by the nation's Supreme Court, has drawn unprecedented calls for mercy. Academics and entrepreneurs say it has shed light on the lack of adequate channels for cash-strapped small and medium-sized enterprises (SMEs) to obtain credit through formal lending sectors.

Details about the pilot programme have not been revealed. But possible changes could include legalising private fund-raising and allowing private money into financial institutions such as micro-loan companies, rural commercial banks and rural credit co-operatives, said Zhou Dewen, chairman of the Wenzhou Small and Medium-sized Enterprise Development Association.

Zhou said government officials in Wenzhou, in Zhejiang province, handed the State Council proposals to reform private lending and fund-raising last year after thousands of businesses fell into bankruptcy.

Hu Chengzhong, vice-president of the Zhejiang Federation of Industry and Commerce, said that more than 11,400 firms collapsed in the first half of last year, owing to banks' reluctance to lend to smaller firms and to the high interest rates associated with private borrowing.

Zhou said other suggestions include enhancing protection for private-lending participants, stepping up monitoring of the use of funds and liberalising interest rates.

Wen said the central bank and banking regulator would be in charge of the trial in Wenzhou.

Experts say the liquidity squeeze experienced by smaller businesses last year showed the mainland lacks an important means of financing that caters specifically to SMEs. Large banks often prefer to lend to state-owned companies because it poses less risk.

Liu Kegu, an adviser and former vice-president of China Development Bank, has for years argued that the operating model of large banks does not allow lending to SMEs and that there was a need for 'grass-roots financial institutions'.

There was no lack of liquidity, Liu said, but rather proper channels to help the money trickle down to those really in need.

'It's like we have a huge dam that could overflow at any moment if it rains,' Liu said. 'But right beside the dam there are dry fields.'

770m yuan

The sum, in yuan, that billionaire Wu Ying (above) was convicted of raising illegally, half of which she repaid