Private lenders thrive in China as banks neglect small clients

In Beijing's central business district, where advertisements for banks beam out from the sides of luxury hotels and office buildings, loan guarantee companies and wealth management firms are mushrooming to address the demand for financial services that banks disregard.

Along Guanghua Road, in the capital's Chaoyang district, billboards advertising financial intermediary firms can be found every few metres, offering quick loans or high investment returns. And of the 10 cold-calls you receive each day, at least half will be from such companies.

"Chinese authorities are being almost unprecedentedly tolerant with private financial intermediary firms," Yi Xianrong, a researcher with the Chinese Academy of Social Sciences (CASS), said.

"While the government aims to make funds accessible to a broader group of individuals and companies, irregularities are also on the rise to test regulatory boundaries."

The Communist Party announced in November that it would deepen reforms and open up the financial sector wider to private investors in the years leading up to 2020, in a bid to improve financial services to individuals and small- and medium-sized enterprises that have limited access to bank loans.

When Liu Dong, who owns a marketing company in Beijing, needed to borrow 100,000 yuan (HK$127,000) as working cash he asked several banks. He was told there was no loan quota left as it was the end of year. But when he turned to a loan guarantee company that had recently sent him an advertising short message, the answer was positive.