Financial reform needs new laws

This is understandable. The benefits of financial reform don't usually show up during the initial stage, which can last for a few years. During that time, the process of reform is seen by those affected to have brought only trouble and inconvenience. That should explain why so many Wenzhou merchants and moneylenders are giving financial reform a cold shoulder.

For instance, only three of the hundred or so moneylenders in Wenzhou have answered the government call to turn themselves into registered finance companies or rural banks. The resistance of the others could frustrate the plan to establish a transparent interbank money market that can facilitate the channeling of bank deposits to finance business activities at interest rates more in sync with real supply and demand.

It's clear that official pleas for voluntary cooperation have fallen on deaf ears. Wenzhou's hard-nosed business people are not going to abandon their old practices to embrace financial reform unless they can see real and immediate benefits in doing so.

In this respect, they are not behaving in any particularly selfish or greedy way. When the government of Hong Kong embarked on its version of financial reform in the late 1970s, so as to lay the groundwork for the building of an international financial center, it had to bring the private sector on board not only by persuasion and some arm-twisting, but, more effectively, with a series of legislature initiatives.

The new laws redefined the financial industry by banning some old practices and introducing a fresh classification of market players placed under the supervision of a newly established watchdog, independent of the bureaucracy. Those companies that were either unwilling or not qualified to gain admittance to the new order were left with no choice but to shut down.

Since persuasion seems to have failed in Wenzhou, the government may have to consider legislative initiatives to restart the financial reform engine.

(China Daily 02/18/2013 page8)