CRI听力:Financial Forum Stress Need for Upgraded Capital Markets

Getting a business loan in China to set up your own company has never been easy.

Bank policies which demand significant collateral has forced many would-be business owners into borrowing money from other places, such as peer-to-peer lending or other non-banking options.

On top of this, there's also a well-documented culture among Chinese state-run banks to give lending priority to larger, state-backed companies, with the expectation that even if the business fails, the government will step-in to repay the loan.

Issues such as this have been addressed at the "Financial Street Forum" put on this weekend by the Beijing Municipal Government.

Leading economists, senior financial regulators, business leaders and government officials have come together to discuss ways to change the way financing is done in China.

Among them, Noble-prize-winning economist Myron Scholes, suggests small and medium sized businesses need more options to get their hands on cash.

"I think that the growth momentum will come through developing new financing mechanisms that support the small and medium enterprises more efficiently than it's currently done. And I think that will also be that the banking culture, the banking system, builds a much better understanding of how to build credit models. The idea that moving in a direction that loans not just transfers, but basically one has to evaluate the credit."

Beyond support for small business development, the elite panel of experts has also discussed what to do with China's "zombie companies."

These are state-backed firm which are swimming in debt, and only continue to survive through government bailouts.

Chinese economist Wu Jinglian says while cutting off these companies may be difficult - as they're often major employers in China's industrial-based cities - both the banks and the companies themselves need to be held accountable.

"The function of the capital market is an efficient allocation of funds. That means banks can't simply continue to roll out cash for every company which comes to their doors. They should only be providing money to firms which are profitable, and at the same time, cutting off companies which are unable or unwilling to change their business models to survive. We can't keep wasting resources on these kinds of firms."

The Chinese government has been moving in this direction.

And this is starting to become evident through the bad-loan ratio.

Chinese state-run lenders, in their preference toward lending to state-backed companies, are seeing their bad-loans beginning to pile up as governments start refusing to prop-up these companies.

The overall bad loan ratio in China through the first quarter hit 1.75-percent.

A few years ago, the bad loan ratio at the state-run banks hovered around 1 to 1.2-percent.

While worrisome, the China Banking Regulatory Commission says the new figures are still manageable.

Meanwhile, the other major issue discussed at this weekend's "Financial Street Forum" is the growing level of debt in China.

Eric Chaney, Chief Economist with insurance provider AXA Group, says its not just 'government' debt which needs to be addressed.

"The debt of the private, non-financial sector in China is more than 200 percent of GDP, and that was signaled several times this morning. So if you want to deal with this excess of debt, you need to have a good market, a good credit market."

To cope with the growing debt problem in China, authorities have been looking at different options, including opening up 'debt-for-equity' swaps, which turn banks into shareholders of companies struggling to repay loans.

For CRI, I'm Victor Ning.