China c.bank to legalise part of private loans -report

BEIJING Nov 11 (Reuters) - China will try to legalise part of its huge underground credit market, the Chinese central bank was quoted as saying on Friday, in a bid to bring order to an unruly sector worth several trillion yuan.

Rampant lending and borrowing between savers, firms and loan sharks in the underground market have for years thrown a lifeline to many small private Chinese firms otherwise denied loans from banks.

But the sector was shaken up in recent months after scores of businesses from coastal Wenzhou city to inland Erdos in Inner Mongolia defaulted on loans with interest rates as steep as 100 percent, leading to calls for Beijing to regulate the market.

"China will guide private money to engage in regulated borrowing and lending, and to encourage entities to step out of the shadow," the China Securities Journal quoted "an official in charge of the matter" at the central bank as saying.

The remark from the People's Bank of China suggested that Chinese regulators, sometimes criticised by analysts for being too slow in catching up with market trends, is finally prepared to legalise some underground deals and supervise others.

Chinese ministries sometimes flag new policy changes by speaking in state media through unnamed interviews.

By the central bank's last official estimate, China's underground borrowing and lending market was worth 2.4 trillion yuan ($378 billion) in March 2010. It has almost certainly expanded since.

But the market is not regulated even though it regularly breaches Chinese laws. In China, interest rates that are four times that of benchmark rates can be deemed "usury" and could lead to criminal charges. ($1 = 6.346 Chinese Yuan) (Reporting by Zhou Xin and Koh Gui Qing; Editing by Ken Wills)