China - China unveils reforms to help private firms

SHANGHAI: China has unveiled a package of financial reforms to help struggling private firms in the eastern city of Wenzhou after it was hit by a debt crisis last year, state media said on Thursday.

The powerful State Council, or Cabinet, in Beijing announced the 12-point plan that will offer financing to small firms and more channels for private investment on an experimental basis in the city, the China Daily newspaper said.

Wenzhou, in Zhejiang province, was rocked last year when more than 90 bosses of private companies fled after being unable to repay crippling debts as the economy slowed.

The crisis cast a spotlight on underground lending that had flourished in the city as authorities clamped down on official financing channels and major banks chose to lend mainly to large state-owned enterprises.

Among the trial reforms, state-owned banks will be encouraged to lend more to small firms, the official Xinhua news agency said. Private companies will also be able to issue corporate bonds to raise funds.

The government will relax limits and allow private individuals to make direct offshore investments, Xinhua said, in a step towards opening China's tightly controlled capital account.

Wenzhou, which has 400,000 private companies, has earned a reputation as the centre of China's private economy. 

Last year's debt crisis sparked fears it could spread nationwide as Wenzhou investors have poured funds into property and other industries such as mining elsewhere in China.

One financial industry official said the plan formalised what was already taking place in practice, with the blessing of the central government.

"The policies are really inspiring," said Fang Peilin, chairman of Wenzhou-based Fang Xing Guarantee Co, which helps small companies get loans by providing guarantees to lenders.

"Previously only local governments approved of private financing. Now the central government has recognised it," he told AFP.

The pilot project will also encourage private investment in financial institutions, such as rural banks, Xinhua said.

The State Council said the package of reforms would "solve the outstanding problems of Wenzhou's economic development and regulate the development of private financing."

- AFP/al


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