The Chongqing government has come up with a novel way to support the city's cash-strapped small business lenders - asking foreign investors to bail them out.
Luo Guang, the president of the city's financial office, plans to ask international private equity houses to extend financing to the so-called xiao e dai kuan - lenders of last resort - which fund small private enterprises that state-owned banks perceive as too risky, three people familiar with the talks said.
Staff from Luo's office have approached Hong Kong-based private equity houses in recent weeks, gauging their interest in becoming shareholders in a new fund, worth three billion yuan (HK$3.66 billion), which would provide liquidity to 91 micro lenders, the people said.
Chongqing's micro lenders have been struggling to fund themselves, the people familiar with Luo's project said. But their situation is common across the mainland.
Legalised in May 2008, the xiao e dai kuan are similar to the subprime lenders that sprung up in the United States before the global financial crisis to extend cash to that nation's riskiest borrowers.
These lenders - there are about 4,000 of them on the mainland - have in the past borrowed from state-owned banks and then lent the money to small, private firms at higher interest rates, pocketing a fat profit on the difference.