On The Standardization Of China’s Private Lending

Private lending has been long-standing in China. In recent years, with theadjustments of national interest rate and credit loan policy, to get creditloans is evenmore difficult for Chinese people, especially small farmers and people who have nostable income. Private lending is becoming more active than ever before. It makes upfor the defects of the formal financial institutions, and provides a source of funds forsmall and medium enterprises, and promotes more businesses. In some fastdeveloping areas, the demand of loans is immense. This has caused the privatelending sector to expand its scale and this trend is a potential issue in the future.However, the existence of anything has its pros and cons. private lending plays apivotal role in China’s economic development, and the expansion of China’s industrialstructure adjustment; the prosperity of the urban and rural markets, and arapidincrease in employment. While at the same time, themajor drawbacks of privatelending cannot be ignored. Due to its characteristics, without any financial regulatoryauthorities, private lending procedures are unprotected by the government. One of therisksis smalllawless elements using the name of the private lending to engage inillegal activities, seriously affecting the normalprivate lending practices, normalsubsisting, and socio-economic orderly development. In China, the private lendinghas long been underground in a hidden state, and is considered to be synonymouswith usury, which is illegal. Because it is illegal, it is facingstrict monitoring by thefinancial regulatory authorities, repeated rectification, and prosecution. The factsshow that the investigation and handling of this, treats the private lending situationsas usury does not contribute to the solution in this case. It will affect thesocio-economic development and also private lending activities in a more subtle way.If you do not give the private lending legal status, it will continue to play a role in theform of underground activity and accumulate a certain amount of financial risk andsocial risk. Therefore, it needs to be studied in depth, before implementing theory andpractices about how to correctly deal with the issue of private lending, and how it canbe regulated. In this paper, the research background is in private lending, concentrating around standardizing the development of China’s private lendingpractices and regulations. The body of the article has total of three parts:Part I: Overview of China’s private lending. The article’s first two aspects fromprivate lending connotation and denotation, explains what is private lending, bydefining it. Second, using a time line in history starting from the Qing Dynasty toexplain the past, and present private lending practices in China. Finally, it analyzedthe private lending situation, and its ongoing development, structure, and practices inChina.Part II: Private lending is an ancient way of borrowing in China and many othercountries of the world. Private lending at this current stage is to make up for thedefects of the formal financial entities, and improve the efficiency of resourceallocation, and has an important and positive role in China’s industrial structureadjustment. The prosperity of the urban and rural markets, results in a strong socialemployment expansion. However, in the development process there are drawbackswhich cannot be ignored, and to some extent hindered the socio-economic normal andorderly development. The analysis shows there are positive aspects as well asnegative aspects to private lending; concluding that China needs to standardized theprivate lending sector.Part III: Specification of the concept of private lending system. First it startsfrom the analysis on perfecting the private lending legislative norms, the legislationon the specification of private lending system. But the norms of private lendingsystem, not only should start from the legislation, and should also change fromadministrative supervision. Therefore, this paper’s analysis starts with the perfectingof administrative supervision of China’s private lending. For instant, has a clearvision of China’s private lending regulatory guideline, to improve market access exitmechanism, and to build China’s private lending regulatory risk warning mechanismfor handling issues, and so on.