BEIJING Nov 24 China's entrepreneurial hub of
Wenzhou has unveiled measures to turn grey-market lending into
formal credit to support cash- starved small firms while
reducing financial risks, state media reported on Saturday.
Under the plans announced by the municipal government, the
wealthy coastal city of Wenzhou, aims to channel private money
into local businesses through formal institutions - mainly
small credit firms, the official Securities Times said, citing
These credit firms will be allowed to issue bonds via
private placements while qualified credit firms could be turned
into rural banks, the newspaper quoted Zhang Zhenyu, head of the
municipal government's finance office, as saying.
Wenzhou, in eastern Zhejiang province, is known throughout
China as a Mecca for private entrepreneurship and grey-market
A string of bankruptcies last year - which spawned suicides
and disappearances by entrepreneurs unable to repay
high-interest loans - prompted a visit by Premier Wen Jiabao and
a decision to bring underground financing out of the shadows.
In March, China's cabinet approved the launch of a financial
reform pilot project in the city, which it hoped to replicate
across the country later to tame the underground lending market
where interest rates can reach 100 percent.
Several Wenzhou-based companies have submitted applications
to national regulators to set up rural banks, trusts as well as
insurance and securities firms, the Securities Times said.
The city will also develop specialised asset management
companies and provide support for major projects through asset
securitisation and bill issuance.
"(But) regulator departments will be very strict in
approving new financial institutions. The financial reform won't
be done overnight," the newspaper quoted Zhang as saying.
The city will publish an index to track changes in local
borrowing costs as early as this month, Zhang said.
Some 30 small loan firms have already registered with the
government since March, with total registered capital of more
than 8 billion yuan ($1.28 billion), according to state media.
A surge in bad loans in Wenzhou has highlighted difficulties
facing the free wheeling city, as private firms cannot get
enough loans from state-owned banks while exporters are
struggling to cope with weak demand and soaring wages.
The average non-performing loan ratio at banks in Wenzhou
reached 3 percent by the end of August - the highest level in at
least a decade, according to local media.
Wenzhou is awaiting cabinet approval to allow the city's
residents to make direct overseas investments in yuan, the
newspaper quoted Wu Guolian, head of the local branch of the
People's Bank of China, as saying. Such a move would be a big
step towards liberalising capital account transactions.
China's premier-in-waiting Li Keqiang said this week that
the country must embrace market-based reforms to help sustain
($1 = 6.2285 Chinese yuan)
(Reporting by Kevin Yao; Editing by Sanjeev Miglani)