Wen mulls steps to legalize informal lending

Premier Wen Jiabao said Wednesday that authorities are looking at ways to legalize China’s informal-lending sector, a vast network of small firms, wealthy individuals and loan sharks that support private enterprise through unregulated and sometimes illegal loans, The Wall Street Journal reported. “We should guide and permit informal capital into the financial arena, standardizing it and bringing it into the open, encouraging its development and strengthening its supervision,” Wen said during a press conference at the National People’s Congress. China’s central bank and the China Banking Regulatory Commission may launch trial reforms of informal lending in Wenzhou, a city in Zhejiang province that is considered a center of private enterprise and informal lending. UBS has estimated the informal-lending sector at between US$316-632 billion, or as much as one-tenth of China’s GDP. Tightening monetary conditions led to an expansion in the informal lending sector last year, increasing the risk that some investors might lose their savings as borrowers default.