Hostname: page-component-586b7cd67f-tf8b9 Total loading time: 0 Render date: 2024-11-25T05:04:14.488Z Has data issue: false hasContentIssue false
  • English
  • Français

Market-Based Regulatory Responses to Private Lending in China: Beyond a Law and Society Paradigm

Published online by Cambridge University Press:  30 January 2017

Wei SHEN
Get access Rights & Permissions [Opens in a new window]

Abstract

Along with China’s economic downturn, there has been an increase in the size of China’s underground lending market. The mounting risk in connection with this underground lending market triggers tremendous interest and debates over appropriate and effective regulatory responses. Because of its private and non-transparent character, the underground lending market is likely to confound those seeking to find “black letter” law governing its regulatory framework. Instead of relying on its conventional tighten-up strategy—using the muscle of the Criminal Law—China has orchestrated an experiment by allowing local legislation to formalize part of the underground lending market, as well as a judicial approach by recognizing a higher interest rate charged by underground lenders to borrowers. This article tries to understand the underlying rationale of regulatory and judicial movements through both law and society, and law and finance lens.

Keywords

private lendingunderground lendingregulationlaw and societylaw and finance
Type
Law and Finance in (South)East Asia
Information
Asian Journal of Law and Society , Volume 4 , Issue 1 , May 2017 , pp. 59 - 79
Copyright
© Cambridge University Press and KoGuan Law School, Shanghai Jiao Tong University 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Dean and Professor of Law, Shandong University Law School. The author gratefully thanks Professor Thomas Stanton for his valuable comments on an earlier draft of this article and Rochelle MacKenzie-McQueen for her excellent editing input. Correspondence to Shen Wei, No. 5 Hongjialou, Jinan City, Shandong Province, China 250100. E-mail address: [email protected].

References

Allen, Franklin, Qian, Jun& Qian, Meijun (2005) “Law, Finance and Economic Growth in China.” 77 Journal of Financial Economics 57–116.CrossRefGoogle Scholar
Angkinand, Apanard P., Sawangngoenyang, Wanvimol& Wihlborg, Clas (2010) “Financial Liberalization and Banking Crises: Cross-Country Analysis.” 10 International Review of Finance 263–292.CrossRefGoogle Scholar
Awrey, Dan (2015) “Law and Finance in the Chinese Shadow Banking System.” 48 Cornell International Law Journal 1–49.Google Scholar
Ayyagari, Meghana, Demirgüç-Kunt, Asli& Maksimovic, Vojislav (2010) “Formal Versus Informal Finance: Evidence from China.” 23 Review of Financial Studies 3048–3097.CrossRefGoogle Scholar
Barboza, David (2011) In Cooling China, Loan Sharks Come Knocking,” New York Times, 13 October.Google Scholar
BBC (2011) “China to Control Shadow Banking and Private Lending,” BBC News, 19 October.Google Scholar
Beck, Thorsten, & Demirgüç-Kunt, Asli (2006) “Small and Medium-Size Enterprises: Access to Finance as a Growth Constraint.” 30 Journal of Banking and Finance 2931–2934.CrossRefGoogle Scholar
Beck, Thorsten, Demirgüç-Kunt, Asli& Levine, Ross (2004) “Finance, Inequality and Poverty: Cross-Country Evidence.” No. 10979 NBER Working Paper, online <http://www.nber.org/papers/w10979> (last accessed 11 November 2016).CrossRef+(last+accessed+11+November+2016).>Google Scholar
Beim, David O., & Calomiris, Charles W. (2001) Emerging Financial Markets, New York: McGraw-Hill.Google Scholar
Berger, Allen N., & Udell, Gregory F. (1998) “The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the Financial Growth Cycle.” 22 Journal of Banking and Finance 613–673.CrossRefGoogle Scholar
Bloomberg (2013) “Regulating China’s Shadow Banking System Isn’t Easy,” Bloomberg News, 25 April.Google Scholar
Bloomberg (2014) “Private Lending ‘Legal’ in Wenzhou,” South China Morning Post, 3 March, online <http://www.scmp.com/business/banking-finance/article/1438786/private-lending-legal-wenzhou> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Bosworth, Barry P., Carron, Andrew S.& Rhyne, Elisabeth H. (1987) The Economics of Federal Credit Programs, Washington, DC: The Brookings Institution.Google Scholar
Boyd, Bradley K (1988) “The Development of a Global Market-Based Debt Strategy to Regulate Private Lending to Developing Countries.” 18 Georgia Journal of International and Comparative Law 461–463.Google Scholar
CBRC (2014) “CBRC Vice Chairman Yan Qingmin Attended Small- and Micro-Sized Financial Service Sub-Forum of Boao Forum for Asia,” online <http://www.cbrc.gov.cn/Chinese/home/docView/C1B3D38F6C61440B024B7FABEAD15A57.html> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Chung, Olivia (2011) “China Squeeze Drives Boom in ‘Black’ Banks,” Asia Times, 26 August, online <http://www.atimes.com/atimes/China_Business/MH26Cb02.html> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Claessens, Stijn, & Perotti, Enrico (2005) “The Links between Finance and Inequality: Channels and Evidence.” No. 33652 World Bank Working Paper, online <http://documents.worldbank.org/curated/en/594991468135945215/The-links-between-finance-and-inequality-channels-and-evidence> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Demick, Barbara (2012) “Death Sentence for Business Woman Arouses Opposition in China,” Los Angeles Times, 17 February.Google Scholar
Dollar, David, Hallward-Dreimeier, Mary Shi, Anqing Wallstein, Scott Wang, Shuilin& Xu, Lixin Colin (2003) Improving the Investment Climate in China: Investment Climate Assessment, Washington, DC: World Bank and International Finance Corporation.Google Scholar
EJI Insight (2013) “Wenzhou Banks’ NPL Ratio Hit 28-Month High,” EJI Insight, 3 December.Google Scholar
Farrell, Diana, Lund, Susan Rosenfeld, Jaeson Morin, Fabrice Gupta, Niyati & Greenberg, Ezra (2006) “Putting China’s Capital to Work: The Value of Financial System Reform,” McKinsey Global Institute Report, May.Google Scholar
Financial Times (2015) “Chinese SOEs: Hope over Experience,” 15 June.Google Scholar
Honkapohja, Seppo (2014) ““Lessons from the Financial Liberalization in the Nordic Countries in the 1980s,” in W.T. Woo, Y. Pan, J.D. Sachs & J. Qian, eds., Financial Systems at the Crossroads: Lessons for China, Singapore: World Scientific Publishing, 135–165.CrossRefGoogle Scholar
Honohan, Patrick (2008) “Cross-Country Variation in Household Access to Financial Services.” 32 Journal of Banking and Finance 2493–2500.CrossRefGoogle Scholar
IMF (2014) “Financial Access Survey,” online <http://data.imf.org/?sk=E5DCAB7E-A5CA-4892-A6EA-598B5463A34C> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Kaminsky, Graciela L., & Schmukler, Sergio L. (2003) “Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization.” No. 9787 NBER Working Paper, online <http://www.nber.org/papers/w9787> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Lardy, Nicholas (1998) China’s Unfinished Economic Revolution, Washington, DC: The Brookings Institution.Google Scholar
Lardy, Nicholas (2014) “China’s Rise Is a Credit to Private Enterprise Not State Control,” Financial Times, 15 September.Google Scholar
Leung, Chris (2014) “It’s Far From Enough to Only Adjust Stock Structure of SOEs,” 11 August, online <http://money.163.com/14/0811/15/A3CI99HS00254TFQ.html> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Lin, Justin Yifu, & Li, Yongjun (2001) “Promoting the Growth of Medium and Small-Sized Enterprises through the Development of Medium and Small-Sized Financial Institutions.” 1 Journal of Economic Research 10–18. (in Chinese).Google Scholar
Linton, Katherine Connor (2006) “Access to Capital in China: Competitive Conditions for Foreign and Domestic Firms.” Journal of International Commerce and Economics, online <https://www.usitc.gov/publications/332/journals/access_to_capital_china.pdf> (last accessed 7 November 2016).CrossRef+(last+accessed+7+November+2016).>Google Scholar
Luo, Jun, & Prasso, Sheridan (2013) “China’s Banking System and Access to Credit,” Testimony before the US-China Economic and Security Review Commission, 7 March, online <http://www.uscc.gov/sites/default/files/3.7.13_Sheridan%20Prasso_Written%20Testimony.pdf> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Mao, Junhua, & Jing, Luo (2011) “An Analysis of China’s Underground Lending.” 11 Capital Markets 46–47 (in Chinese).Google Scholar
Martin, Michael F (2012) “China’s Banking System: Issues for Congress,” 20 February, online <https://www.fas.org/sgp/crs/row/R42380.pdf> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
McDonald, Joe (2012) “China’s Unofficial Lending Falters, Savers Protest,” Salon, 17 February.Google Scholar
McKinnon, Ronald I (1973) Money and Capital in Economic Development, Washington, DC: Brookings Institution.Google Scholar
Miller, Ken (2010) “Coping With China’s Financial Power.” 89 Foreign Affairs 96–109.Google Scholar
OECD (2014) Financing SMEs and Entrepreneurs: An OECD Scoreboard, Paris: OECD Publishing.Google Scholar
Pettis, Michael (2013) Avoiding the Fall: China’s Economic Restructuring, Washington, DC: Carnegie Endowment for International Peace.CrossRefGoogle Scholar
Pierson, David (2011) “Shaky Underground Banking System Raises Fears in China,” Los Angeles Times, 14 October.Google Scholar
Pistor, Katharina (2013) “A Legal Theory of Finance.” 41 Journal of Comparative Economics 315–330.CrossRefGoogle Scholar
Prabha, Apanard (Penny), & Ratnatunga, Minoli (2014) Underground Lending: Submerging Emerging Asia?, Santa Monica: Milken Institute.Google Scholar
Rajan, Raghuram, & Zingales, Luigi (2003) Saving Capitalism from the Capitalists, Princeton: Princeton University Press.Google Scholar
Rapoza, Kenneth (2012) “A China Millionaire’s Brush with Death,” Forbes, 21 April.Google Scholar
Reinhart, Carmen M., & Rogoff, Kenneth S. (2011) “A Decade of Debt.” No. 16827 NBER Working Paper, online <http://www.nber.org/papers/w16827> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Sen, Sunanda (2005) “Finance in China after WTO.” 40 Economic and Political Weekly 565–571.Google Scholar
SMU (2008) “A Tale of Two NGOs: Bangladesh’s Grameen Bank and BRAC,” Singapore Management University, 4 February.Google Scholar
Stanton, Thomas H (2012) Why Some Firms Thrive while Others Fail: Governance and Management Lessons from the Crisis, Oxford: Oxford University Press.CrossRefGoogle Scholar
UN (2008) “Doha Declaration on Financing for Development: Outcome Document for the Follow-Up International Conference on Financing for Development to Review the Implementation of the Monetary Consensus,” online <http://www.un.org/esa/ffd/wp-content/uploads/2014/09/Doha_Declaration_FFD.pdf> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
UN Human Development Report (2003) Millennium Development Goals: A Compact Among Nations to End Human Poverty, Oxford: Oxford University Press.Google Scholar
Wildau, Gabriel (2015) “Beijing’s Overhaul of State Groups Faces Compromise,” Financial Times, 15 September.Google Scholar
World Bank (2012) “Enterprise Surveys: China,” online <http://www.enterprisesurveys.org/nada/index.php/catalog/644> (last accessed 7 November 2016).+(last+accessed+7+November+2016).>Google Scholar
Wu, Guolian (2011) “An Investigation into the Current Underground Lending Market.” 8 Zhejiang Finance 25–27 (in Chinese).Google Scholar
Xinhua (2010) “China Shuts Down 500 Underground Banks in 8 Years: Ministry,” Xinhua News, 22 November.Google Scholar
Xu, Hongshui (2001) “Financing Gap and Minimization of Transaction Cost: Why SMEs Have Problems in Financing and How to Improve the Policy.” 11 Journal of Financial Research 47–53.Google Scholar
Yang, Chen (2014) “Wenzhou to Legalize Private Loans,” Global Times, 18 February.Google Scholar
Yang, Yan, & Mitchell, Tom (2016) “China’s Private Sector Misses Out on Credit Boom,” Financial Times, 3 July.Google Scholar
Zhang, Nan, & Wong, Perry (2014) Sustainable Microfinance in Asia: Landscape, Challenges, and Strategies, Santa Monica: Milken Institute.Google Scholar
Zhao, Hongmei, & Qing, Koh Gui (2011) “China’s Runaway Bosses Spotlight Underground Loan Market,” Reuters, 29 September.Google Scholar