China Weighs Legalizing Gray-Area Lenders

China's central bank favors legalizing some gray-area private lenders and removing ceilings on interest rates, an official said Thursday, changes that would make it easier for the nation's small and private businesses to get loans, The Wall Street Journal reported. The People's Bank of China plans to submit proposals for the regulatory changes to the State Council, or cabinet, as soon as possible, said Zhou Xuedong, director general of the central bank's law and regulation department. The proposals come as China's government has said it wants to boost the development of the private sector, which has traditionally been at a disadvantage in getting loans from the largely state-dominated banking sector. Mr. Zhou said the central bank plans to propose removing a rule that has been in place since 1995 that caps interest rates charged by makers of microloans at four times the benchmark lending rate. He told a financial forum in Beijing that in practice many microlending firms have charged rates above the ceiling, which was put in place to protect poorer people from possible predatory lending. Mr. Zhou said the situation has improved, so a rule change would be appropriate. He also said the central bank has drafted a proposal to legalize non-bank private-lending firms, which have been playing an important role in supporting some small businesses, despite their semilegal gray-market status. Read more. (Subscription required.)