In November 2015, Dr Lerong Lu published an article at Financial Regulation International, which examines the financing difficulty facing China’s private businesses, and how they on the private lending market to raise funds. Private lending refers to moneylending activities outside the banking sector and it is widely used by Chinese entrepreneurs as a popular alternative financing channel. In 2011, the shadow banking system encountered a serious credit crisis, leading to the bankruptcy of thousands of enterprises. In the mean time, a number of bosses chose to run away to evade debts, including the chairmen and CEOs of some public companies. This article tries to unveil the stories behind China’s corporate world and how the underground financing system works.
Title: ‘Runaway bosses’ in China: Private lending, credit crunches and the regulatory response.
Abstract: Mr Ding Hui, the chairman and chief executive of a Hong Kong-listed fashion retailer, Fujian Nuoqi Co Ltd, suddenly went missing in July 2014. As a result, the company’s share price slumped by more than 50% in three consecutive days. It remained mysterious about Mr Ding’s motivation for abandoning his business empire, but later on news report revealed that the incident had something to do with his enormous debts owed to several moneylenders. In China, the state-dominated banking sector is reluctant to lend to private-owned businesses, so entrepreneurs often have to borrow money from shadow banks to fund their business ventures. According to one estimate, the market scale of China’s informal financial system amounted to 5 trillion yuan (US$806 billion). However, in absence of regulation, private lending led to a series of credit crisis in recent years, which has been evidenced by an increasing number of insolvent businesses and runaway bosses. In response to this, the Chinese authority has launched a series of financial reform in order to effectively regulate the rampant lending market and improve the availability of credits for money-starved entrepreneurs. Most recently, China’s first financial regulation regarding private lending, “Wenzhou Private Financing Regulation”, came into effect in 2014, which created a registration-based regulatory regime. This article aims to examine the popular phenomenon of runaway bosses in China. It will try to find out why the private lending mechanism inevitably led to credit crunches and fugitive bosses recently, as well as to analyse the tentative regulatory system regarding private financing.
Publisher: London: Informa Law
Lerong Lu, ‘Runaway Bosses in China: Private Lending, Credit Crunches, and the Regulatory Response’ (2015) Financial Regulation International, Vol. 18(9), pp. 1-13. ISSN 1473-3323
Key Words: private lending, private financing, shadow banking, runaway bosses, credit crisis, Chinese economy, financial regulation
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