Monday, November 24, 2008

Yuan Watch : 'Poof'!' Our banking system is now bigger

(One would think that materializing a 10 -20% increase in the size of total lending in their economy- as far as the headline' is concerned - will help them meet the GDP 'numbah'. -AM)

BEIJING (Reuters) - China is preparing to bring the country's extensive underground banking system in from the cold as part of attempts to boost lending to small businesses hit hard by the credit crunch and economic downturn.
Informal lending networks, though technically illegal, have been a lifeline for decades for countless businesses that are too small or precarious to be able to borrow from banks, which typically lend to big state-owned or state-backed firms.
With concern growing about a cash crunch at small and medium-sized enterprises, which account for about three-quarters of all jobs created each year, the government is considering bringing these backstreet moneylenders out of the shadows.
Liu Ping, a researcher with the People's Bank of China, said earlier this month that the central bank had completed the draft of a regulation that would make it legal for individuals to extend loans.
"The government is going to accept what it previously wanted to crack down on -- or even get rid of," said Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, the country's top think-tank.
Estimates of the scale of informal banking range widely. Some studies put it at 10-20 percent of total lending in the economy.
Wu Xiaoling, a lawmaker who used to be a vice central bank governor, said legalising the kerbside market would "give freedom to people who play with their own money
The maximum interest they can charge is four times the benchmark rates set by the central bank -- currently 6.66 percent for one-year loans -- and 70 percent of the loans they extend must be less than 500,000 yuan.
Zhao, the Renmin professor, said the risks were not necessarily greater than those taken by big banks.
"Just look at what happened to the well-established banks on Wall Street," he said.

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