Accompanying the tightening of central bank's monetary policy, it has become even more difficult for small and medium-sized enterprises (SMEs) to obtain financing. Informal lending has thus become a topic of concern among delegates and members during the two sessions. Delegates and members such as Gu Shengzu and Zheng Huiqiang believed that informal lending is a beneficial supplement to formal financial institutions and can help alleviate SMEs' difficulties in obtaining financing. To address the issue of lack of regulation in informal lending, it is necessary to expedite the reform of the financial system. 80% of SMEs cannot obtain bank loans. According to statistics, SMEs contribute to 80% of urban and rural employment, over 60% of GDP, and more than 50% of corporate tax revenue. However, a significant portion of SMEs face not only "high costs" but also unprecedented financing pressure. A survey conducted last year by the Zhejiang Provincial Committee of the Chinese People's Political Consultative Conference (CPPCC) showed that 80% of SMEs in Zhejiang cannot obtain bank loans.
Zheng Huiqiang, national CPPCC member, vice chairman of the Central Committee of the China Democratic League, and vice president of Tongji University, pointed out in his proposal "Suggestions on Further Alleviating SMEs' Difficulties in Financing" that deposit restrictions should be gradually relaxed to encourage more social capital to participate in micro-credit. Under the circumstances where state-owned commercial banks continue to tighten loan scales, SMEs can only rely on informal finance to relieve their financing problems. Informal lending penetrates into corners that formal financial markets find hard to reach, filling the funding gap formed due to the latter's reluctance to get involved and insufficient supply.
Guiding "floating funds" back to the real economy
A standardized informal lending market can provide investment channels for abundant private capital and guide "floating funds" back to the real economy. If left unregulated, informal lending could give rise to usury and increase the risk of sudden breakage of the capital chain. Data from the Wenzhou branch of the People's Bank of China in the first half of 2011 showed that the scale of informal lending funds in Wenzhou was approximately 110 billion yuan, of which only 35% was used for general production and operation, 20% for real estate, and as high as 40% remained in the informal lending market.
Gu Shengzu, national people's congress representative and deputy director of the Internal and Judicial Affairs Committee of the National People's Congress, proposed "Accelerating Financial System Reform, Making Private Finance Legalized, Standardized". He suggested establishing an order framework to regulate informal lending activities so that the informal lending market becomes a component of a multi-level financing system, changing its spontaneous and disorderly state.
Is interest rate liberalization foreseeable?
Incorporating informal lending into a standardized system will increase competition in the financial sector and reduce the monopoly level of the financial industry. Does this mean that China will deepen the reform of interest rate liberalization? The reform will make interest rates better reflect the demand for funds in the money market and increase the accessibility of financing for SMEs.
Gu Shengzu believed that efforts should be made to eliminate the "dual system" of official interest rates and private interest rates, improve a benchmark interest rate system based on the market with management, progressively promote the liberalization of deposit and loan interest rates, further lift the lower limit of RMB deposit and loan interest rates, thereby reducing the survival space for "usury" in private finance.
Zhao Linzhong, national people's congress representative and chairman of the board of directors of Furun Holding Group, advocated interest rate liberalization. He stated that for small online peer-to-peer loans, China's current one-year deposit interest rate is maintained at 3.5%, and the spread between deposit and loan interest rates has expanded to about 5 percentage points, while the deposit-loan spread of banks in Europe and America is generally less than 1 percentage point. This has led to difficulties for SMEs in obtaining financing from banks, and even if they do, they have to bear considerable costs. Zhao Linzhong suggested starting from deposit interest rates to accelerate the process of interest rate liberalization.
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