Landmark Wenzhou lending law set to take effect

Wenzhou's financing management regulation, the first local legislation covering private lending, will take effect on March 1.

The regulation was voted through on Nov 22, 2013, at the sixth meeting of the 12th Standing Committee of the Zhejiang Provincial People's Congress.

It's been called a breakthrough to monitor and regulate private financing activities, as well as a model for the nation.

Filling the gap in Wenzhou's finance market

Wenzhou breaks new ground on private lending

The regulation is intended to be a formal solution to the financing problems of small and medium-sized enterprises by providing a more regulated system in Wenzhou.

The city was selected to conduct trials of financial reforms at the end of March 2012. Regulators and lawmakers recognized the need to regulate the collapsing private-financing system after widespread loan defaults by factory owners and investors led to a crisis.

The draft regulation was submitted by the city's finance office to the Zhejiang provincial government for final review in November 2012.

"The regulation will promote the development of the private-financing environment and boost the real economy by providing detailed restrictions and more diverse financing channels," said Li Youxing, a professor at the Guanghua Law School at Zhejiang University and a member of the drafting team.

A detailed version of the regulation was drafted by the city government, and it will be finalized by the end of February.

Operating guidelines are expected to be issued in conjunction with the legislation that will clarify definitions and specify the procedures for dedicated bond issues and dedicated fundraising.

"The regulation will create more financing platforms and instructional guidelines", said Fang Dalin, an official in charge of the implementation of the regulation at Wenzhou's financial office.

Fang added the detailed regulations, with their clearer definitions, are intended to encourage more private lending participants to put their financing activities on record, providing the protection of the law thereafter.