High price of informal financing

Private loan sector needs regulating to promote the healthy development of small and medium-sized enterprises

The coal-rich city of Erdos in the Inner Mongolia autonomous region is bathing in the revelry of private borrowing at present. As an important supplier of natural resources in China, Erdos' average GDP per capita already exceeds that of Hong Kong. Almost every family in the city owns property there.

Private enterprises' hunger for cash flow in the tightening fiscal environment coincides with the abundant private capital in Erdos and as the city has prospered, pawnshops, small-loan companies and agencies for private equity funds have proliferated everywhere in the city. They attract savings with a high interest rate and lend the money to enterprises at a much higher rate than the banks.