Press Interpreter

03/24/06 -- In The Draft Proposal, Petty Loan Companies Are Not Allowed to Receive Public Deposits -- “Under the circumstances wherein China’s credit environment is still imperfect, if individuals or specialized companies were allowed to use equity capital to make small loans, in accordance with laws drafted by regional governments and subject to the constraints of contract law, then perhaps the normalization of private finance will slowly become a realistic alternative.� On March 22 at the Asia-Pacific Regional Small Loan Forum, Wu Xiaoling, a vice president at the People’s Bank of China, spoke thusly. Yi Gang, the Assistant to the President of the People’s Bank of China, read the statement aloud on her behalf.

With regard to existing private finance, in recent years central bank cadres have on many occasions “rectified its name.� However, Wu’s speech has provided a realistically possible course for promoting private finance and developing small credit in China.

Wu Xiaoling says, “As a beneficial supplement to standard forms of finance� and “an indicator of social demand for finance,� the private finance sector should be guided in a rational manner. More specifically, in order to prevent “external harm� to society, the proposal does not allow small loan companies to receive public deposits. They may only use a limited number of private shareholders’ funds and wholesale capital from institutions to engage in professional work. The risks of utilizing capital must then be borne by the shareholders and wholesale capital organizations behind these small loan companies.

This demand is undoubtedly strict and cautionary. Yet at the same time, Wu Xiaoling also explains that, with regard to operating good small loan companies, “there might finally be hope to broaden finance channels and to create the conditions for the establishment of a new finance structure.�

She further recommends that central or regional governments formulate “Regulations for the Management of Lenders�; that the Ministry of Reconstruction and Commerce manage and register lending organizations; and that an individual credit registration system documents all interest-bearing loans. She further suggests the cultivation of basic knowledge among borrowers and that courts be able to adjudicate disputes over lending contracts. In reality, this provides a complete picture of the path to legitimizing private finance.

In addition, Wu Xiaoling also expressed important ideas about the greater small loans market and the market environment generally. She also said that due to the unequal nature of economic development, the small credit sector should give priority to regional and community finance houses. Also, to create “moderate competition,� she recommends reforming the “one village, one cooperative� system of traditional rural credit cooperatives and opening up the way for running inter-regional rural credit cooperatives. Limitations that only allow the establishment of one credit cooperative in each region should be removed. At the same time, encouraging large commercial banks to reorganize existing county-level financial structures and encouraging private capital to participate in this financial reorganization will create accommodating policy conditions for newly established, independent financial institutions within the counties.

[Full Article]

By Caijing Reporter Hu Jiao and Field Correspondent Yang Dong

* Ms. Wu Xiaoling is a Deputy Governor for the People’s Bank of China.

--Translated by Abra Murray

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