温州金融改革试验

Zhou Dewen, director of Wenzhou's Small and Medium-sized Enterprise Association hailed the reform package as a "milestone."

"This reform will bring hope for struggling SMEs and private firms. It will not only influence firms in Wenzhou, but also represent a turning point for the country's entire financial system."

Wenzhou, situated in east China's Zhejiang Province, is a major manufacturing centre for small businesses and a major source of funding for small and medium-sized enterprises.

However, the government's tight monetary policy last year made it harder for the local firms to acquire funds from banks and caused some business owners to shut their factories and skip town, leaving creditors behind empty-handed.

Meanwhile, a shadow banking system, which came to prominence last year, sought to supply credit to cash-strapped firms, albeit at exorbitant rates. The government cracked down on what it considered the most outstanding cases of illegal lending, including sentencing to death Wu Ying, an entrepreneur in Zhejiang, for "fraudulent fundraising."

Yuan Gangming, a professor of economics from Qinghua University, says the reform package symbolizes a desire for "inspiring" change.

"The government used to crack down on private finance in Wenzhou whenever something went wrong. But this time it has made the area a pilot zone and is allowing private finance to gain a legal status and develop accordingly. This means that the government can regulate the industry now, as opposed to before, when the authorities were cracking down on underground private lending, they let it run wild without any checks and balances."

Professor Yuan stresses that private finance should be directed towards supporting small and micro-sized firms, which are neglected by traditional financial institutions.

However, Yi Xianrong, a financial economist from the Chinese Academy of Social Sciences, is more cautious about the reform package. He points out that the liberalization of interest rates and the formation of a credit system are vital for the reforms to be successful.

"No other countries' central banks set the interest rates of deposits and loans of commercial banks. In China, the commercial banks' function of pricing risk has been taken away. Without a credit system, private finance firms will take away any profit, and leave the risks and costs to the rest of the society. This can trigger a financial crisis. "

Banking sector profits in China reached an uNPRecedented level of one trillion yuan last year, ranking as the most profitable industry nationwide.

However, interest rate liberalization is not included in the reform package.

But it does allow Wenzhou residents to invest directly overseas, allowing them more opportunities to be profitable than would be available from investing their money in Chinese banks.

Detailed rules for the implementation of the reform are still being discussed.

For CRI, this is Ding Lulu.