Legal Regulation Of Private Finance Research

Informal Finance has always been a controversial topic in China. The government is concerned that this new rising up power will dilute the limited capital flow in the society and it will be a major blow to the current financial system as to it will have an adverse impact on the steady development of the economy. As a result, our government has adopted a very restrict attitude in the supervision of Informal Finance. Ironically, this high-pressured supervision didn’t achieve what the government originally aimed to. Instead of controlling the risk in the relevant final market, it has induced the prosperous of the underground Informal Finance market and consolidated the monopoly of the state owned finance. This contrast has drawn my attention to rethink profoundly. What are the economic and social reasons for Informal Finance to survive and develop in China? Why does the government want to restrict or even prohibit this type of finance which supposed to have a positive influence on the non-state owned economy? What mechanism the Informal Finance is to be able to survive vigorously under the continuously suppression and prohibition from the government. At the moment, Informal Finance has become a high-profile again due to the influence of financial crisis and the frequent macro-economic control from the government. This is, without doubt, a great opportunity for Informal Finance to become regularized. The supreme need for us is to neutralize the capital and organization of Informal Finance, to establish an inclusive financial system, thereby it will improve the resistance of Chinese economy. With the vigorous economic activities and strong desire for capital from small to medium enterprises, Informal Finance lenders are not content with staying in the grey area. Instead, they hope they can discard the identity of being "usury lender" and become legally protected and operated groups. We hope Informal Finance will take this opportunity to complete the innovation in the financial system and formalize a regulated Informal Financial system.In August2008, Central Bank has drafted "Rules of Lenders" and has submitted it to Legal Affairs Office of the State Council. This will be a milestone for the visibility and regularity of Informal Finance. It will have a positive influence on the development of Informal Finance, it will also stimulate the informal capital so that the bottle neck problems that most small to medium enterprises and fanners had will come to an end. Nevertheless, this is the first step on the ladder; there are a lot to be done. For Infonnal Finance to be really transfonned from the "underground" to "ground", it is not enough to have a single piece of "Rules of Lenders", a whole legal system is required, and this is what we are lacking of at the moment. For a long term, we have adopted this harsh suppression policy against Informal Finance; the so called supervision is mainly prohibitions. The supervision is overpowering and the effectiveness of it is very poor. In conclusion, we have to re-establish the legal structure of Informal Finance, to change the current status of the supervision and to promote the development of the regulation of Infonnal Finance, so that it will become the newly emerging force of the financial innovation and economic development in China. The purpose of this essay is attempting to form a clear legal structure for Infonnal Finance, through which the risk of Informal Finance will be controlled, so that it can be put into good use for the economy. The theoretical purpose of this essay is to discuss the vision transfonn from the traditional view of the regularity of Infonnal Finance and it will give some suggestions and references to the legislative reform.