BIZCHINA> Review & Analysis
Private lending can open up credit market
By Ma Hongman (China Daily)
Updated: 2008-11-19 11:46

Worse, this will evolve into a vicious cycle. A key to breaking the stalemate lies in a vigorous injection of outside fund.

However, the established commercial banking system alone seems unable to shoulder such a heavy responsibility.

The authorities have suspended an index limitation on banks' credit scale and turned to a moderately loose monetary policy, but these have not reversed the country's contracting credit business.

Statistics show lending by domestic financial bodies increased by 181.9 billion yuan ($26.48 billion) in October, which was the lowest growth rate compared with the foregoing months. With a large number of struggling enterprises thirsty for life-saving funds, it is really a pity that domestic banks with abundant funds still remain over-prudent and reluctant to offer a helping hand.

Under these circumstances, the central bank's intention to open up the unofficial lending channel is expected to ease the current embarrassing situation.

If the domination of domestic commercial banks over the domestic credit market is broken, the long-sluggish lending business is likely to make a new breakthrough.

In the long run, opening domestic credit business to individuals and companies will also help improve efficiency in the distribution of social resources.

However, any possible imperfections in the preliminary-stage development of the private credit market may set limits on its development and expansion.

Experiments by some small-scale creditors in the country, however, point to another problem. They show that quite a number of unofficial lending bodies may find it difficult to meet the requirements set by relevant State departments, although they have established a well-developed apparatus to run their daily business.

There are two big obstacles for less powerful unofficial credit agencies to achieving a bigger stride forward.


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