Private lending was formally legalised in Wenzhou at the weekend as the central government seeks to improve smaller companies' access to credit, Xinhua reported.
Detailed rules for the pilot programme, under the Wenzhou Private Financing Regulation, were completed last week and came into effect on Saturday, Xinhua reported, citing Zhang Zhenyu, a deputy secretary-general of the municipal Communist Party committee and head of the city's finance reform office.
The financial reform in Wenzhou underscores the central government's recognition of the plight of small businesses, which have been sidelined in its credit binge in the past few years despite accounting for 60 per cent of economic output and 80 per cent of jobs.
In 2011, company failures in Wenzhou, a city of about 9 million people in Zhejiang province, sparked a series of suicides and some entrepreneurs were paying interest of as much as 7 per cent a month to illegal lenders to try to keep their businesses afloat.
The Wenzhou regulation allows lending through private capital management companies, financing information service firms and lending service institutions, three types of intermediaries that are not part of the legal financial system elsewhere on the mainland, Xinhua reported.
Such lending service institutions emerged in Wenzhou in 2012 when the State Council approved a broad package of financial reforms allowing it to serve as a test bed for liberalising private lending. Seven service centres in Wenzhou with registered capital of 7 billion yuan (HK$8.8 billion) had 2.5 billion in outstanding loans in December, according to Xinhua.
It said 89 per cent of households and 60 per cent of firms in Wenzhou were involved in private financing, with total capital estimated at 110 billion yuan, citing a 2011 survey by the People's Bank of China.