Business

China has approved plans this March to set up a pilot zone in the eastern city of Wenzhou with a deep tradition of entrepreneurship, to regulate private financing activities.

The long-awaited decision comes after local debt-laden entrepreneurs, unable to repay debts, fled the city or even committed suicide last year when banks cut lending to SMEs as part of credit-tightening measures. To keep business running, many business owners had to resort to seeking underground credit.

Analysts believe that the launch of the pilot zone sent positive signals. It showed the government's determination to lead the financial reforms that are urgently needed, and lead private fund-raising activities to develop in an orderly way so as to strengthen their capability to serve the real economy, said Ma Guangyuan, a researcher at the Venture Capital Research Institute of Peking University.

The decision covered 12 major points, which include developing privately owned financial services, setting up village banks and rural financial co-ops, and allowing private direct investments to be made overseas.

Owners of private businesses welcomed the move. "I see a lot of new investment opportunities coming up for private capital," said Fu Jiarong, General Manager of Jiexin Micro-Finance Co. in Lucheng District of Wenzhou. He added that micro-finance companies, along with other new types of financial institutions such as village banks and rural financial co-ops would absorb substantial private capital that used to be transacted underground, and the capital would greatly boost the local economy.

Zhou Chunlong, General Manager of an instrument company in city of Leqing in Zhejiang, called for more attention from the financial institutions for the needs of small and micro-sized private enterprises. Besides, he suggested the regulator should strengthen supervision and establish sound risk-control systems.

The reform will standardize and regulate private fund-raising and loans. Ma believes that it is "of importance not only for Wenzhou, but also it can serve as an example for financial reform and economic development nationwide."

12 Tasks for Financial Reforms in Wenzhou

●The orderly development of fundraising for private enterprises.

●Accelerating the development of new types of financial organizations, including joint-stock village and township banks, loan companies and rural financial co-operatives. Qualified micro-credit companies can be developed into village and township banks.

●The development of special assets management to guide private capital into venture capital and private capital funds.

●Allowing private direct investments to be made overseas.

●Deepening reforms of regional financial institutions; encouraging state-owned banks and joint-stock banks to set up special micro-credit programs for small and medium-sized enterprises; encouraging non-banking financial institutions to expand their businesses; and encouraging rural joint-stock financial institutions.

●Developing financial services designed for small enterprises and companies involved in farm production.

●Developing local capital markets and encouraging exchanges of property rights - of technologies and copyrights, among other things - among privately held companies.

●Opening the local bond market to small enterprises.

●Broadening the insurance sector.

●Strengthening the credit system to include small enterprises and rural entities and strengthening credit market regulation.

●Building up a comprehensive local financial regulatory system.

●Developing a risk management system for financial reforms and duly defining and dividing the local government's responsibilities for maintaining financial stability.