The Research Of Private Lending Legislation

Private lending, comparative to formal finance, means capital lending activitiesbetween such subjects as natural persons, legal persons and other organizations, otherthan financial institutions established according to the national laws. Since the latterhalf of2011, private lending crisis has spread over Wenzhou and some other cities,which quickly aroused a wide buzz over precautions of all social sectors againstprivate lending and relevant risks, crisis intervention or even policies and legislation.In perspective of the private lending crisis in Wenzhou, this paper has introduced thecurrent legislation of China on private lending, analyzed main problems existing insuch legislation, and demonstrated the necessity and feasibility of improving thelegislation on private lending in China. Also this paper has given suggestions on howto improve the legislation on private lending in China by combining the presentfinancial pilot reform in cities like Wenzhou and borrowing foreign legislation onprivate lending.This paper contains three parts.Part Ⅰ Introduction to the current legislation on private lending in China. First, itintroduces the concept of private lending. Second, it introduces the characteristics ofprivate lending. Through introduction to the forming and development process ofprivate lending in Wenzhou, it is demonstrated that private lending is an economicphenomenon; meanwhile, private lending also has multiple legal features, and thus itis a legal phenomenon. Third, it narrates the current regulations of China on privatelending from four levels:1. To acknowledge the legality of private lending;2. Toreject the legal effect of partial private lending behaviors;3. To punish and crackdown illegal behaviors relating to private lending activities;4. To guidetransformation of private finance to formal finance. Part Ⅱ Analysis of main problems existing in current legislation of China onprivate lending, mainly from the following five aspects:1. The current legislationleads to financial repression. It demonstrates that the current legislation only protectscivil private lending that accounts for a small proportion in the traditional sense, butrejects the significantly large proportion of operational private lending, resulting insqueezing the existing space of private lending, a “grassroots finance”;2. Privatelending lacks effective supervision. It introduces the fact that private lending has notbeen “blocked”, but got stronger. However, the government has no effectivesupervision over private lending, which causes disorder in the private lending market;3. Regulations on forbidding lending behaviors between non-financial enterprises donot practically work. It mainly narrates the general existence of lending behaviorsbetween non-financial enterprises practically existing in the real economic life;4. Thelegal boundary between private lending and illegal fund-raising is ambiguous. First, itintroduces the embodiments of such ambiguous legal boundary between privatelending and illegal fund-raising; second, through analysis of “Wu Ying Case”, itfurther reveals the ambiguity of the legal boundary;5. Lack of legislation on usury.This is mainly introduced from two aspects, i.e. hard identification of usury and lackof legal accordance to crack down usury.PartⅢ Suggestions for improving legislation on private lending in China. First,started from the forming process of private lending crisis in Wenzhou, it hasdemonstrated the necessity of improving the legislation on private lending in Chinafrom four levels:1. Hazards of private lending with high interest rates;2. Thenecessity to uncover underground finance from Wenzhou private lending crisis;3.Private lending proven by practice to be beneficial supplements to formal finance;4.The short supplementation of formal finance to private economy in China. Second,through introduction to private lending and legislative practice in America, Japan,Britain and Hong Kong region of China, and the pilot practice of local legislation onprivate lending this year, the paper has summarized the highlights that worthborrowing to legislation on private lending in China and demonstrated the feasibilityof improving legislation on private lending in China. Third, specific suggestions for legislation are proposed from the following five aspects:1. To formulate speciallegislation for regulating operational private lending, focusing on regulatingadmission of lending subjects, capital sources and the lending interest rates, etc.;2. Toimprove the supervisory rules on private lending;3. To relax the restrictions onlending between non-financial enterprises;4. To further define the boundary ofprivate lending and illegal fund-raising;5. To establish a criminal liability system ofusury.