New players emerge to finance China's small, emerging firms

Ge Le, general manager of the Qingdao Xinbang Pawn Co Ltd, a subsidiary in Shandong province of CITIC Asset Management, said that pawnshops provide a convenient solution to resolve capital crunches for enterprises, particularly during crises.

In the spring of 2013, Ge's company helped a high-tech maker of yachts and parts in Qingdao, which couldn't raise startup capital as China tightened controls on loans.

Qingdao Xinbang Pawn provided 20 million yuan in loans, with the shipyards' yachts as collateral. As the company's capital position improved, it eventually received 200 million yuan from a trust company. The yard went from near-bankruptcy to booming growth.

"Without us lending a hand to the manufacturer, it would never have been able to secure the much-needed funds from the trust company," said Ge.

Financial leasing, another important activity for NBFIs, expanded from 900 billion yuan in 2011 to more than 2 trillion yuan this year.

The Blue Book on Financial Leasing for the first three quarters of 2013 shows that as of Sept 30, there were 746 financial leasing companies, up from 560 at the end of last year. Manufacturers often sink a lot of their capital into expensive equipment, which is itself a huge risk to cash flows. Once they run short of capital, the equipment becomes a major liability, Liu explained.

"Financial leasing is only involved in 4 percent of the overall economic activity in China, while the number is 30 to 40 percent in developed countries.

"As economic reforms deepen, we hope that the government could provide stronger policy support to the sector," Liu added.

Regarding concerns over the activities of NBFIs, Liu said China's that financial leasing companies, factoring companies and the like have been around for only a few years.

They're not large enough to threaten the economy. They're surely under the watchful eye of relevant business agencies, Liu said, and even the police.

Private or individual lending also is limited to areas that don't pose overall risks to the economy.

"As a high-risk business, professionals in the financial industry as well as the non-bank financial sector must be extremely cautious at all times.

"To prevent risks takes the combined efforts of the business sector, academia and the government," said Liu.

"Most importantly, rules and regulations for the non-bank financial industry need to be put in place. Trust can't replace comprehensive, systematic supervision when it comes to the financial sector."