Bloomberg News

Chinese City Probes Illegal Lending to Keep ‘Financial Order’

October 15, 2011

Oct. 15 (Bloomberg) -- The eastern Chinese city of Wenzhou will implement measures to “maintain financial order” as it seeks to clamp down on illegal financing and keep executives whose companies are saddled with bad debt from trying to flee.

The measures include pursuing companies that fail to pay worker salaries and investigating “in a timely manner financial crimes that harm public assets,” the city’s public security bureau said in a statement on its website yesterday.

“This is for the financial stability of our city,” the statement said. “The bureau is determined to fight illegal activities.”

Media reports that Wenzhou factory owners fled after failing to pay debts unnerved investors concerned about Chinese banks’ asset quality and a slowdown in the property market, UBS AG said in an Oct. 11 report. The city of 9.1 million residents has gained a reputation for non-bank lending and speculative property investment, the brokerage said.

Security forces will provide protection to owners who cannot pay workers’ salaries on time due to “temporary difficulties,” the bureau said. It also vowed to tackle activities that spread rumors or create panic.

Excessively high lending rates prompted Wenzhou to set an upper limit on the interest rates that private non-bank lenders can charge in an effort to control risk in the banking industry. Tighter government credit policies have led smaller Chinese manufacturers to seek loans through informal channels.

China’s bank lending last month was the least since 2009 as inflation stayed above the government’s target, according to central bank data released yesterday.

Wenzhou set up a 500 million yuan ($78 million) fund to offer loans to small companies in the city, Zhejiang Online, a news portal run by the local government, reported on Oct 13.

--Editor: Nicholas Wadhams, Jim McDonald

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net


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