Home sick today, so its less “translation by train,” than “translation a-bed while catching up with the 11th Doctor.”  In case you’re interested, my diet on a sick day is reduced to whatever the local bodega has to offer up: in this case, Choco Leibniz and hearty bean soup, which is still better than my sister, who would be eating tuna out of a can by now.  Anyway, with a little more time at hand, I’ve done a longer translation about proposed changes to Chinese lending law.

Not surprisingly, the former-Communist state restricted private lending in a variety of ways. PRC law only permits commercial banks and certain other approved financial institutions to extend commercial loans.  The People’s Bank of China, the main financial regulatory agency, the China Banking Regulatory Commission, and presumably the CCP, have tremendous influence over lending by these institutions, which they used to reduce lending to small and medium sized companies (and real estate ventures) and to fight inflation recently.  Starved for cash, SMEs and others turned to the private lending market.  Under regulations enacted in 1991, however, PRC law limits private loan interest rates to no more than four times the relevant bank rate.  Sources indicate that “excessive rates” won’t be enforced by the government.  Nevertheless, as reported in this article, actual interest charged may be 6 to 8 times greater than the bank  rate.  Needless to say, the number of debt disputes reaching the courts are rising likely due to this, as well as a general lack of regulation.  Following several high-profile problems in 2011, including a credit crunch in entrepreneurial Wenzhou city, where in 2011

one-fifth of the city’s 360,000 small- and medium-sized enterprises (SMEs) have stopped operating due to cash shortages, and nearly 100 business owners disappeared or declared bankruptcy to invalidate debts owed to individual creditors from the private lending market, according to the city’s council for SMEs

the Government acted.  While measures were taken to alleviate the immediate crisis, analysts indicate that long-term structural problems under gird the issue.  Here’s Forbes‘ take on it.  I’m getting tired, so lets get on with it – the translation below discusses a proposal for reforming the private lending industry in some (to my amateur eyes) minor ways.  It summarizes and quotes remarks made by Qi Qi, representative to the National People’s Congress currently meeting in Beijing and Chief Judge of the Zhejiang Provincial Supreme (or “High”) Court.  I’d love to read an explanation of how the legislative process over there works and whether Qi Qi’s statements should be understood as the dominant opinion of policy makers, the outcome of debates within the government, his own personal opinion or the views of some other group or faction, etc.  The original article is in Caijing.

NPC Representative Proposes Raising Upper Limit on Private Loan Interest Rates and Legalizing Inter-company Loans.


National People’s Congress representative and Chief Judge of the  Zhejiang Province Supreme Court Chief Judge, Qi Qi, stated that, in light of the vigorous market for private loans in recent years,  he proposes quickly formulating appropriate law and regulation which would raise the maximum interest level for private loans and  confirm the legality of company funds transfers for use on the private loan market.


Chief Judge Qi stated that Zhejiang’s small, medium and micro business now regularly participate in private loan transactions, and that the Court continues to handle an increasing number of private lending disputes.  In 2011, the national courts handled more than 600,000 cases of this kind, involving a total of 114.3 billion yuan.  The 2011 case load represents a 38% increase over 2010.  Zhejiang courts are dealing with more than 90,000 cases involving private loan disputes, approximately 15% of the national total.


“To a great degree, the private loan market has expanded small, medium and micro enterprise access to financing, however, there are hidden transaction risks not easy to control.  Also, regular loans are interwoven with illegal ones, leading to regional financial risk.”  In light of these facts, Chief Judge Qi stated that “now there is an urgent need to develop law and regulation that brings increased transparency to the private lending sector.”


Under current law, the interest rate of private loans cannot exceed four times the interest rate of similar bank loans.  Rates more than 4 times  the bank rate are not protected under law.  However, this limit was established more than 20 years ago, in 1991, by the Supreme Court, and is now out of step with the current changes in economic development.  For example, in Zhejiang province, the interest rate for short term loans of 10 – 15 days has already reached six to eight times the bank rate, and sometimes rises even higher.


“National economic and financial development does not proceed evenly, a fact that we must face.  Our proposal raises the upper limit on interest rates from the current legislated level or allows different interest rates for different regions and conditions.  For example, the rules would allow different rate limits for the Eastern and Western regions, as well as short and long term loans,” he said.


Chief Judge Qi also explained that new legislation would recognize the legality of company funds transfers to make and receive loans.  Under current law and judicial interpretation, inter-company loans are still ineffective.  To circumvent the law prohibiting their entry into the private lending market, some companies place their funds in the names of individuals.  As a result, contracts that should bind two companies become debt between individual, natural persons.  In light of these developments, restrictions on company funds must be loosened by passing legislation to permit the transfer of company funds for use in private loans and to allow the legal existence of intercompany loans under certain conditions and limits.


Judge Qi proposed quickly enacting law and regulation, such as a “Lender Code of Conduct” or similar standards for private commercial lending, as well as laws addressing lender qualifications, fund sources, loan size, interest rates, guarantees, and registration requirements, as well as necessary supervision.  He also indicated that regulation would differentiate between private commercial and consumer loans.

OK.  Hope my good, but not perfect translation was useful.  Suggestions, corrections, comments and discussion are welcome.  But for now, I am taking up my sonic screwdriver, downing some aspirin and turning on netflix.