November 11, China is considering establishing a monitoring system for private lending activities to provide more information for macro-policy making, the official Securities Times reported on Friday.

"Government departments will perfect relevant rules and laws to guide the activities of private lending and build multi-level credit markets" an official at the People's Bank of China, or the central bank, said on Thursday.

The interest rates of private lending can be higher that the rates offered by banks but should not exceed 4 times that of banking rates, the official cited an existing rule as saying.

“In China’s legal system, there is no concept of private lending. But as a beneficial and necessary complement of formal financing channels, private lending has legitimacy,” the official said.

The remarks came after a credit crisis that has occupied news headlines for the past month broke out in the eastern city of Wenzhou, home to large numbers of entrepreneurs and small-and medium-sized enterprises (SMEs).

So far this year, one-fifth of the city's 360,000 SMEs have stopped operating due to cash shortages, and nearly 100 business owners have fled or declared bankruptcy to invalidate debts owed to individual creditors from the private lending market, according to the city's council for SMEs.

A tightened monetary policy aimed at curbing inflation and the preference of banks to lend to large or state-backed enterprises means many private SMEs in China have to resort to the high-interest informal lending market, where annual interest rates can run to as high as 100%.

Source:21cbh.com