温州市第一家民营资本管理公司

Wenzhou city in eastern China's Zhejiang province has established of its first private capital management company. The company, named "Xintong", comprises of 5 local enterprises and 4 individuals, and has a registered capital of 100 million yuan. Xintong's manager Huang Yongping says the firm is established with a specific purpose.

"We establish this company with a clear mission: to guide the reform of private capital management. We help connect local enterprises facing financial difficulties with massive amounts of idle funds."

Wenzhou, know as a base for small- and medium-sized enterprises or SMEs, is home to some 4000 such enterprises. Many SMEs are barely able to stay afloat due to capital shortage amid tighter public lending policies and often have to seek help in the private capital market. The local government estimates that 600 billion yuan worth of funds are available in the market; but despite this fact, a large number of SMEs still find themselves in trouble financially.

Financial expert Wang Chen says the disorderly operation of the private capital market has lead to today's situation.

"Underground banks now run massive private capital operations in the city. They illegally absorb deposits and lend money to small- and medium-sized enterprises at unreasonably high rates. The highest annual yield of banks such as this reached 170 percent last year. Sky-high interest rates obstruct the development of debtor enterprises."

Last year, a number of cases of enterprises in Zhejiang Province failed to pay back the high interest private loan and their owners had to abandon their businesses and flee.

Xintong's manager Huang Yongping says the company does not provide private loans; instead it focuses on equity investment and corporate restructure investment with fixed returns. They are mainly targeting small and medium sized science and technology enterprises. Chen Guoguang is chairman of the Xintong Company.

"We plan to invest in a cash-strapped lock company built up by a college graduate. They manufacture high-tech locks utilizing finger print, combination and remote control technologies. We see a bright future for this business, so we decided to invest in it."

Financial expert Wang Chen says private loans only suit enterprises with high rates of return that are able to pay off their debts within a short time period. But for scrappy start-ups with a low rate of return, equity investment provides them with a better chance of surviving in competitive markets.

Xintong's Manager Huang Yongping says the company will primarily focus on short-term investments this year. And according to the local government's regulation, all short-terms investments should be registered at the local private loan registration center, with legitimate proof of capital supported by a bank declaration. The company pledges to inform investors of all potential risks and maintain their rate of return at a level at most 4 times of the interest on bank loans; the national legal cap for private lending interests.

Wang Chen says the company is a good example of a well-regulated private capital management company.

"Clarification of a company's legal source of capital is the first step in regulating the private capital market. The existence of such proof prevents the illegal absorption of deposits and money laundering commonly seen in underground banks. Usury can be prevented as long as these companies keep their rates of return under the national legal cap. And equity investors who are well informed by a registered company should be more aware of the risks than those putting money into underground debt investments."

Local financial service officials say the establishment of this company is a crucial step in the reform of the local financial system, as well as an essential leap-forward in regulating the local private capital market. Three more private capital management companies are expected to open later this month and a private loan registration center is to be constructed by the local government.

For CRI, I'm Wang Wei.