2012-04-12

Caixin editorial on weaknesses in Wenzhou reforms

Wenzhou reforms will face challenges and Caixin lays out several of the potential stumbling blocks in Laudable 'Wenzhou Project' Still Faces Many Obstacles
Also, under the Wenzhou project, some small loan companies can turn themselves into village and town banks, but they could be defeated by the Interim Provisions on the Administration of Village and Town Banks, which state that "at least one of the founders or investors of one such bank should be a banking financial institution."

Third, there is a lack of clear policies to support small loan companies.

The State Council has expressed clear support for private capital to enter the financial market. And, in 2008, the China Banking Regulatory Commission and the People's Bank of China jointly issued a set of guidelines on pilot small loan companies. The guidelines say that natural persons, legal persons and other social organizations can invest in and establish small loan companies, but their development is limited by another rule that their funding sources be restricted to registered capital.

The fourth failure is a number of unaddressed faults in the local capital markets.

Indirect financing has long played a key role in China's financial industry, while direct financing is a minor actor. Among the different types of direct financing, listing is the most popular, and bonds, equities and venture capital are among salient weak links.
Read the whole article.

Since the Wenzhou reform is just starting, there's room for changes that could hamper it or ensure it's success. The stakes are high:
The present central government's term ends in less than a year, so both central and local authorities should carry out various initiatives as quickly as possible. Any breakthrough in the explorative spirit of Wenzhou will affect the whole country.

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