China needs to break a banking “monopoly” of a few big lenders that make easy profits because it’s hard to borrow money elsewhere, Premier Wen Jiabao said.
The country can extend nationwide the successful parts of a pilot program in Wenzhou in Zhejiang province that allows private financing, including non-bank lending, Wen said yesterday, as cited by China National Radio.
Wen is trying to deepen access to credit among small businesses as part of efforts to rebalance the economy toward domestic consumption and away from dependence on exports. He spoke as Chinese regulators yesterday accelerated moves to open capital markets by more than doubling the amount foreigners can invest in the nation’s stocks, bonds and bank deposits.
“These are potentially far-reaching proposals but we can’t just assume there will be major changes on the ground,” said Mark Williams, an economist at Capital Economics Ltd. in London who formerly advised the U.K. Treasury on China. “Efforts to undermine the major banks will be fiercely resisted by those in the banks, who are themselves major political players.”
China’s State Council last month approved a plan under which Wenzhou will develop more types of bonds and allow trading of unlisted equities, technology and cultural products. The plan, first mentioned by Wen in March, seeks to broaden funding channels for private companies, which compete for bank loans with bigger enterprises, some state-owned.
The Cabinet asked Wenzhou to “regulate and develop” private financing, encourage individual funds to set up village banks or lending companies, and support state-owned and commercial banks in setting up micro-lenders for small businesses.
National Radio didn’t report Wen identifying any banks or saying which parts of the Wenzhou trial may be extended. He spoke at a roundtable with private-company executives in Fujian province, according to an article on the broadcaster’s website.
In its move to open up capital markets, the China Securities Regulatory Commission increased quotas for qualified foreign institutional investors to $80 billion from $30 billion, according to a statement yesterday. Offshore investors will also be allowed to pump an extra 50 billion yuan ($7.95 billion) of local currency into the country, up from 20 billion yuan.
Earnings at China’s biggest banks are growing even as a cooling economy triggers loan defaults. The five largest banks, led by Industrial & Commercial Bank of China Ltd. and Bank of Communications Co., reported a 12 percent gain in total profit in the fourth quarter of 2011, the slowest pace in two years, according to data compiled by Bloomberg.
Government tightening of new loans last year squeezed small companies as domestic growth slowed and overseas demand cooled.
More than 80 indebted businessmen in Wenzhou, a city of 9 million people, committed suicide or declared bankruptcy from April through September because they couldn’t repay informal lenders, Xinhua News Agency reported in October.
China’s economy expanded 9.2 percent last year after growing 10.4 percent in 2010. The country posted its largest trade deficit since at least 1989 in February as Europe’s debt crisis hurt exports.
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