An economic downturn means, in general, decreasing orders and shrinking production. It's not always the case for an individual.

Last year when the U.S.-originated financial crisis began to affect the world economy, Yang Jieliang, owner of a printing firm in east China's Wenzhou city, Zhejiang Province, reacted by modifying products like making product smaller in size and simpler in packaging to reduce price and adjusting sales strategy like allowing a customer to pay at a later time. As a result he got more orders from the European market for his greeting cards, Christmas gifts and stationery. While some of his competitors went bankrupt, he resolved to expand business.

But he was short of money. His export-oriented businesses had a yearly output of about 20 million yuan in value. He planned to double the turnover by a new investment of 20 million yuan. The banks he contacted agreed to lend him only 3 million yuan, on the condition of mortgaging houses and land. The processing would take weeks.

Yang put in 6 million yuan of his own savings. The rest he borrowed from individuals privately. During the interview at the end of last month with Xinhua, he would not elaborate on the actual operation of the private transactions. He did say the money came from family relatives and friends. An agreement was usually confirmed by signing a note of borrowing. No mortgage was necessary. The money came quickly. And the agreement was honored.

Such a deal is beyond the legal boundary in China. It's an underground, unprotected operation. Yet, the practice is common in Wenzhou. It is a dominantly great part of the grassroots financing, which was vital to the small and mid-sized businesses that made up more than 90 percent of the coastal city's enterprises and contributed a similar proportion to its GDP.

A sampling survey conducted by Wenzhou Branch Office of the People's Bank of China found the cash money flowing in private financing stood at 65 billion yuan at the end of May. The same report said the annual interest rates of such lending averaged 12.46 percent, against the 6 percent of the country's licensed commercial bank's.

Private lending relies on personal relations and the borrower's credit reputation. The lack of checkable means like mortgage and a standard procedure makes it more likely to problems such as defaults or frauds, which could lead to social unrest. The loss of state tax revenue is also a concern of the government.

However, the practice has worked out well in Wenzhou, despite its informal and underground nature. "Private lending is helpful. It's indispensable to small firms like mine, " Yang Jieliang said.

Wenzhou has been a forefront of China's economic reform. The Wenzhou people are known for a pioneering business spirit. The notions of fund pooling and mutual help are deeply rooted in the local commercial culture.

"Wenzhou's free flowing capital is huge in amount. It is profit-seeking and highly flexible. It gives strong support to small businesses, meeting their needs for renovation or change of operation, to an effect that commercial banks and the government failed to achieve," Zhejiang Financial College professor Ying Yixun said.

After all, risky as it looks, private lending as mentioned above is different from the large-scaled private collection of small individual funds for big investments, which is more likely to go astray. And it is different from usurious high-interest lending, which takes advantage of the client's misfortune or miscalculation, and often resorts to brutal acts like chopping a finger of the debtor in pressing for repayments.