Private financing in Zhejiang faces transformation

Wenzhou's private financing market has been supporting local economic development in its own way. Its holders of 600 billion yuan of private capital have been dreaming and striving to be taken into the country's regular financial system.

"We are dying to transform to a small-sum loan firm and we've been preparing since May," said Guo Zhichao, the board chairman of Wenzhou Zhongtou Investment Guarantee Co. Ltd, the largest guaranty company in Wenzhou.

Guo is allied with more than 20 other companies so he can set up a new small-sum loan company. "I have to ally my company with others, otherwise we cannot meet the capital requirements," said Guo.

Guo noted that small-sum loan companies have been the most popular topic in the industry lately and almost all local guaranty companies have the urge to transform into one.

It is known that some guaranty companies in Wenzhou have been using the guaranty business as a front and are secretly practicing usury. The pilot scheme of small-sum loan companies should have an instant effect on curbing such illegal financial activities.

In Zhou Dewen's opinion, the pilot scheme is a favorable factor for further developing the private banking industry in the long run. Currently, major commercial banks have been continually increasing their loans to SMEs, posing a huge challenge to private financing organizations, including guaranty companies, asset management companies and pawnbrokers. But small-sum loan companies will be able to "live and develop", as long as "they can receive regular administration," said Zhou.

The government of Zhejiang Province will set up a risk-preventing system to monitor the small-sum loan companies. Once a company is found to have broken relevant laws and regulations, it will be investigated and punished by the county government.

For these future small-sum loan companies, regulation is also what they need.

"Only when the industry is well-regulated, will the leading enterprises be able to expand business and the whole industry be able to grow," Guo noted.

But they are now more concerned about entering this business. It's what Fang Peilin and Guo Zhichao are thinking and it's what the 600 billion yuan of private capital in Wenzhou is thinking.

"Wenzhou only got 16 tickets including 5 special quotas," said Guo. "It's hard to say whether I can find my way in."

(China.org.cn by Yan Pei, July 17, 2008)