Landmark Wenzhou lending law set to take effect

Mandatory records

Mandatory recording of loans will be provided for by law for the first time in China.

If a single loan exceeds 3 million yuan ($495,000) or the number of lenders is more than 30, the borrower must record the agreement at the local financing management bureau within 15 days after the deal is signed, under the regulations.

Filling the gap in Wenzhou's finance market

Wenzhou breaks new ground on private lending

The nation's first private lending credit database will also be launched formally on March 1.

"The launch of the record system and the database will offer a fair and transparent platform for borrowers and lenders to carry out transactions in a safer, regulated environment," said Fang.

The regulation is the first instance in China of legalizing dedicated bond issues and dedicated fundraising as enterprise funding methods.

Private placements

Under the regulation, companies may conduct private placements of bonds for specific purposes involving productive operations.

The companies' asset-liability ratios should be less than 70 percent after the debt issue.

"The direct beneficiaries will be SMEs experiencing financial problems, as they can use more methods to raise money legally," said Zhou Dewen, chairman of the Wenzhou SME Development Association.

Zhou added the law will also lower the risks of individuals and enterprises engaged in private lending activities, as well as increase the fiscal income of the local government.

"The regulation will create a more secure environment for trustworthy private lending activities, with more people willing to put money into and reboot the private capital market in Wenzhou sooner or later," said Fu Jiarong, the manager of Wenzhou Jiexin Small-Sum Loan Co.