Private financing should be developed more and further regulated, says a Beijing News story. The following is an excerpt:

China's private lending market, an estimated 3 to 10 trillion yuan in size, plays an indispensable role in driving the vigorously-growing private economy.

Many successful township companies in the early reform and opening up period relied on private financing. A recent State Council document put forward a policy of expanding private investment fields and developing regular private financing. Decision-makers realize private capital should play a greater role in stimulating domestic consumption and that private financing needs more regulation.

Private financing promotes financial system reform, which is needed as the financial sector still lacks competition. Product innovation is slow and service quality must be improved.

Private financing will also help meet the demand for financial services in rural areas, since most big commercial banks have closed branches in remote areas to reduce operation costs. The rural credit cooperatives, currently the main supplier of rural financing, also need reform and commercialization, which private financing could remedy.

Private financing has some disadvantages, such as poor emergency and risk tolerance and irregularities in operation.

The government should develop regulation that shields people from the pitfalls of private financing while still allowing them to take advantage of its benefits.

(China Daily 01/12/2009 page2)