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Private lending is growing. |
Private lending, as a supplement to formal financing, has served to fill the gap in insufficient funds for small- and medium-sized enterprises (SMEs) on the Chinese mainland.
It must also be said that the practice has complemented the formal financial system, contributing to the development and growth of the real economy.
This year, as the stock and property markets have proved lacklustre, more and more people have transferred their money from property and stocks to high-interest private lending, which has become a new "investment channel".
As private lending has become widespread across the country, related risks have also grown.
News of a private lending crisis, with capital fund breakdowns in so-called guarantee companies or with private loan sharks going bankrupt, seems to be increasingly common in the marketplace.
Financial supervisory departments, local governments at various levels (not to mention the State Council) are attaching greater importance to this development.
A report issued by the Research Bureau attached to the country's central bank, the People's Bank of China, showed that the private lending market in China began to boom last year, exceeding Rmb2.4 trillion in value, and accounting for over 5% of the lending market at the time.
The report points out that over the past two years applied capital in China's private lending market has been rising year by year, with capital stock growing over 28%.
There are many different interest groups along the private lending chain, including banks, guarantee companies, small loan businesses, pawn shops, consignors, investment companies, leasing companies, private enterprises and individuals.
Meanwhile, in the private lending system, there are so-called "above-ground organisations", but also "underground" ones in the form of online lending. Together, these organisations have created a buoyant private lending sector.
The huge demand by SMEs has obviously contributed to the rapid growth of private lending. In times of prosperity, private lending can be helpful, but as the capital chain has continued to become extended, some enterprises close down. Inevitably, the ripple effect can shake up the formal financial and banking system.
Much depends on the approach taken by investors when balancing risks. Efforts are being made to improve the supervisory system and regulate private lending.
from Wing Feng, Guangzhou Office
(Image courtesy of Xinhua News Agency)
