The Criminal Regulation Of Private Finance

As a useful supplement to formal financial, private finance accounts for a largeshare in the financial market of our country, provides financial support for the smalland medium-size enterprises (hereinafter referred as SMEs) which are difficult toobtain financing licensing from the formal financial institutions, helps SMEs comethrough financing dilemma and promotes the development of non-public economy.However, under the guidance of the financial repression concept, Chinese governmentcarries out strict control of finance, financial institutions must be established upon theapproval of the government and conduct financing activities under the strictsupervision of the regulatory body. Thus, the legal status of private financing outsidethe financial regulatory system has not been recognized by the law. In addition, due tothe fuzzy boundaries of private financing and illegal financing, the handlingauthorities often do not consider the nature, object and purpose of the financingbehavior of the perpetrators in judicial practice, adopt the one-size-fits-all approach toidentify it as illegal financing, and charge the financier with the criminal liability of“crime of illegal soliciting deposits from the public” and “crime of fraud in financing”,resulting in a large number of cases of illegal financing, which is not conducive to thehealthy development of private financing. Along with the rapid economicdevelopment, there are increasing demands for the legalization of private financing.Thus, the law should give the legal status of private financing, and strengthen to makeuse of the non-penalty approach to regulate private financing behavior, ensure the necessity of the criminal law application, and clearly define the boundaries of privatefinancing and illegal financing, strictly adopt “crime of illegal soliciting deposits fromthe public” and “crime of fraud in financing” at the same time.The full text is divided into four parts: the first part defines the concept of theprivate financing from thepoint of financial supervision, and analyzes thecharacteristics and status quo of private financing. Today, the the private financingdevelops fast and holds a large share in the financial markets. But the law does notrecognise its legitimacy, and almost all the private financing behaviors are determinedas illegal financing in practice, which causes that the illegal financing cases happenfrequently and threatens the safety of the financing. The second part analyzes thereasons of the prevalence of private financing from three perspectives. First itdiscusses that two major contradictions between the stakeholders and the recipientscreate conditions for the popularity of private financing; secondly it clarifies thecauses the reasons that the private financing is favored by the SMEs from threeaspects as financial repression, information symmetry and transaction costs; finally, itexpounds the necessity of the private financing from the perspective of the role ofprivate financing. The third part discusses the legal regulations of the privatefinancing. In order to cope with the defects of the private financing and safeguard thefinancial security, it is necessary to bring the private financing into legal regulatoryframework. However, in the current Chinese legal system, the illegal status of theprivate financing, the lack of non-criminal regulation means and the excessiveintervention of the criminal law hinder the healthy and orderly development of privatefinancing. The fourth part puts forward the suggestions of perfecting the privatefinancing legislation are. China should admit the legitimacy of the private financing inthe form of legislation,, clear the incriminating mechanism of the private financingwhile strengthening the governing by the criminal law means, identify the “crime ofillegal soliciting deposits from the public” and “crime of fraud in financing” strictlyand realizethe harsh crackdowns on illegal financing.