"We don't like change," he said. "It's too complicated, and there are too many unknown factors."

Zhuang's concern is shared by other moneylenders. Only three of the city's nearly 100 small loan companies submitted applications to become finance companies or rural banks.

The most some did to contribute to the reform effort was to take up the official invitation to set up offices in the government-sponsored center for private lending registration services.

The center was established to match the needs of lenders and borrowers in an environment where transactions are properly documented and registered.

But this process is a waste of time for both lenders and borrowers.

Proper documentation at the center offers no additional security to the lender because it has just as much legal status as a simple IOU. Borrowers are trying to avoid the center because they dislike filling out forms that require them to disclose personal and business information they would prefer to keep private.

"We basically have nothing much to offer to lenders and borrowers," said Xu, the general manager of the center. He said it was a problem getting other government departments to cooperate to make the center work.

For instance, "it would help boost the status of the center if courts only accepted loan documents registered with us in litigation", Xu said.

That seems like wishful thinking. Getting the authorities to approve the securing of loans with second mortgages has been a monumental task involving protracted negotiations with various government departments, Xu said.

"We are solving one problem at a time," he said. "It's very time-consuming work."

Timing seems to be the crux of the issue. Financial experts said that the reform process must try to gain credibility by addressing the most pressing problem arising from the collapse of the underground lending market by creating effective and user-friendly channels of funding to the many cash-strapped SMEs.

"I believe that financial reform in Wenzhou is a short-term solution to overcome the impact of the sudden breakdown of the underground banking system before we try to establish its long-term effect," said Liu Shengjun, deputy director of Lujiazui International Finance Research Center at China Europe International Business School.

Liu suggested that allowing SMEs to enter the financial system with fewer restrictions and take part in more cooperation with banks for reasonable-interest loans is probably a better way to help get SMEs and private lenders out of trouble.

Huang is decidedly more practical. "Whatever you do, show us the benefits first," he said.

Contact the writer at yuran@chinadaily.com.cn

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