温州民间借贷将合法化

Under the new regulation, borrowers are required to report to local authorities if a single loan exceeds 3 million yuan, multiple loans accumulate to 10 million yuan, or when the number of lenders is over 30. In raising fund, companies can also conduct private placements of bonds for specific purposes.
 
Meanwhile, the borrower and lender can set the lending rate through negotiations, as long as it follows the national regulation to not exceed four times the benchmark lending rate.

Zhou Dewen, president of the Wenzhou Council for the Promotion of Small and Medium-sized Enterprises, has taken part in the drafting of the regulation. He says as the first of its kind, the regulation will help companies to expand their financing channels.

"Previously, companies were not allowed to borrow from individuals. Legally, they can only get loans from banks. Now, the regulation allows companies to borrow from individuals and other companies. This will help companies to expand their financing channels. On top of that, it may also help to reduce the cost of financing. Now that private lending is legalized, it could encourage more players to take part and help to cut the lending rate."

The regulation, which was drafted in 2012, comes after a credit crisis in Wenzhou, the first city in China to set up individual and private enterprises, caused by a flood of loans advanced by underground banking.

Based on a report released by the Bank of China, as of 2011, the market size of Wenzhou's private loans reached roughly around 110 billion yuan. Nearly 89% of families and 59% of companies were interconnected via private lending.

However, in 2011 a major credit crunch hit the coastal city when many private business owners were reported to have fled or declared bankruptcy after failing to pay outstanding debt. The crisis also led to a 40-percent plunge in home prices during the first half of 2012.

Zhou Dewen says the new regulation will provide legal basis for local authorities to monitor private lending when things go south.

"Previously private lending mostly went underground because there is no law to regulate the practice. Local government had no legal basis to intervene. Now the regulation specifies that local government should be responsible of monitoring private lending, so relevant monitoring body will be set up and step in if things go wrong."

However, Fu Jiarong, the manager of a small loan company in Wenzhou, remains cautious about whether such regulations will overnight restore confidence in borrowers.

"It is impossible that private lending will increase overnight after the regulation takes effect. Private lending is mainly conducted among acquaintances, friends or through someone all the relevant parties trust. The regulation can provide a legal basis for private lending when disputes arise, but I don't think it will have a huge impact on companies like us."

The regulation is now open for public feedback until this Friday.

For CRI, I'm Qizhi.