The Research On Legal Regulation Of Private Finance In China

Private finance is the financing type excluding from formal financial system. Its nature is private borrowing.As the spontaneous development of private finance, it has deviated from government regulation and macroeconomic control for long time, and widely exists in all areas of social and economic life and developed rapidly in many varieties. As a complement of formal finance, private finance developed gradually better depending on its flexibility, convenience, and adaptability.During the period of reformation and opening up, China's private finance was mainly active in rural areas and economically developed southeast coastal areas. The appearance and development of Private finance has its own rationality, which is the product of the development of market economy. The formal financial was controlled by the state in the past for long, and it was mainly aimed to provide service for public economic sectors under planned economy. With the accelerated development of market economy, the formal finance cannot meet the rapid economic development due to the narrow coverage, high threshold ,complex procedures and low deposit rates.At the same time, he community began to accumulate a large number of idle funds since some people get rich first with higher level of living standard. the public investment awareness and investment enthusiasm are greatly enhanced when there are a considerable number of market supply and demand needs. So the public finance surface, and developed rapidly in a short time.The expansion of private finance in a larger extent enhanced its social position, and everyone cannot overlook its existentce. The funds provided by private financing sources has made an indelible contribution for GDP growth. Particular in those economically developed areas, the scale of private financing even can compete with informal finance. The existence and development of private finance, objectively promote the economic high-speed operation. However, private finance has its own inherent weaknesses and limitations since it is civilian, spontaneous, disorganized. All of them are the potential threats to its future development, and also bring the risks to social and economic security. Civil monetary cases in recent years are the best evidence. The huge losses caused by the collapse of Fuan community, endless fund-raising fraud and illegal absorption of public funds all warned us that private financial is a "double-edged sword." Private Finance is just like water resources. Good control and use can benefit the society. Otherwise, it will bring unpredictable losses.Because the private finance is so complicated and unstable, the necessary legal regulation has become a new topic in this new economic construction era. First, the legal regulation is endogenous requirements of private financial. Private finance aims to chase profit, so it has higher risk and speculative nature. It must be taken legal supervision and management. Second, the goals and values of financial law requires that financial security and orderliness is the first principle, so the safe and orderly private finance needs legal supervision from outside. Thirdly, economic law aims to safeguard maximized social interests, so it also requires the private finance can be developed within a reasonable range.Meanwhile, the existence of private finance in the socialist market economy is also a useful supplement to the formal financial. It is an effective financing channel and also meets the requirement of building a multi-level capital market.China's current financial legal regulation is still far from satisfaction.First, attitude of the Government's Private Finance is not clear for a long period and do not want to face the reasonable existence, so private financial development was obstructed by governmental policies.Second, the existing laws and regulations on the provision of private lending are almost blank. Even if there are some sporadic ways and provisions for private finance, the legal position is very low. Meanwhile, the private finance without legal status has been in the awkward gray area.Thirdly, since there is a lack of specialized institutions and managers to supervise the private finance, the current private financial development depends on the internal credit relations, and there is no rigid constrain. Fourth, the legal disputes caused by private lending always cannot be solved fundamentally, and the interests of relative parties cannot be protected, which results the escalation of conflict.Finally, we have not set up an system of effective risk prevention, so we cannot make prior control to the financial risk and also cannot predict the potential troubles. Those problems on current private financial regulations severely restricted the healthy development of private finance.As for the developing direction of China's private finance, we can refer to the existing experiences of other countries and make some modifications and improvements based on China's China's specific national conditions. The attitude to private finance should be transferred from repression to guidance. We should recognize the legal status of private finance and make it gradually become standardized. Specific measures are as the following:First, the law should stated whether the private finance is within the law, and present the legal position and relative duties and rights to private financial legal entities, to that to protect the legitimate private financial activities. For those private financial entities which possess certain capital and can operate legitimately, we can make them legalized.In addition, we should set down China's "Cooperative Finance Law", to specify the duties and right, origination scope, business scope. We can also find professional organizations to make the evaluation for them. We should improve the solutions to the disputes of private financing , making the judiciary can judge the cases in the legal basis.Secondly, the supervision subject to the private finance should be clear, and the duties and right should be as specific as possible. We should specify the special supervision entities and change the supervision method. For different private financial organizations, we should supervised differently. Meanwhile, to strengthen judicial supervision of private financial is also necessary. By simply relying on the strength of state administrative agencies to complete the supervision of private finance is not effective enough. The most possibly effective way is judicial supervision. How to resolve the dispute belongs to the external monitoring. Judicial means of intervention will make the development of private financial development more rational.Third, we must establish industry self-regulation based on the legal framework, which is the auxiliary power of financial supervision. Industry self-regulation mainly presents as industry associations, since this kind of associations can lower the financial risk caused by asymmetric information. Meanwhlie, it also can strengthen the communication between grass-roots government and private financial organizations.Finally, we need to establish a variety of aiding systems for financial supervision. For example, to establish a sound credit rating system in order to strengthen the supervision and management to the private financial credit markets and ensure interests of the financial transactions parties ; to establish a market access system, to specify the access conditions for those able private financial organizations. For those qualified private financial orgnizations, we can issue the business license for them to create a more lax system. We should set up a reasonable insolvency and liquidation system, to control those entities which are under high risks in time, in case to impact to larger extent. We need to establish a deposit insurance system to enhance the public's confidence to the private financial organizations. And their credit rate can also be enhanced. Once there will be any financial risk, the interest of the depositors can be protected and the losses can be controlled to lowest degree.