Reluctant to lend

However, Wenzhou's private lenders have already become more reluctant to lend. A recent survey by the city's banking regulator shows that scale of private lending is currently 30 percent lower than in August, as lenders grow more cautious.

But disputes are growing. Legal cases concerning private lending in the city increased 89 percent year-on-year in the first four months of this year, according to Wenzhou Intermediate People's Court on May 21.

Xu, the center's president, said it is reasonable that people will be cautious about the center at the beginning, but things will gradually get on track. He expects the monthly transaction volume to reach at least 100 million yuan in the near future.

The stakes involved in the center are high because it's the first step in Wenzhou's financial reforms. If the center proves a success, it will probably affect the way that the central government pushes ahead with other measures in the pilot. If it's unsuccessful, the chances are slim that it will be expanded to other parts of the country.

The reforms are urgently needed. China's current banking monopoly by State-owned lenders, which Premier Wen Jiabao has vowed to break, leads to low interest rates on deposits and makes credit scarce for SMEs. The monopoly effectively taxes depositors and distorts the distribution of financial resources nationally. While inefficient State-owned enterprises revel in easy loans, private businesses, which create 80 percent of the jobs in urban areas, often find potential business-saving credit hard to obtain.

Many experts believe that the nation's backward financial system is choking the vigor of the real economy. Pu Haiqing, a deputy of the National People's Congress, said during the annual "two sessions" (meetings of the NPC and the Chinese People's Political Consultative Conference) in March, that the banking sector's "exorbitant profit" blunts the nation's competitive edge and the development of the real economy.

Lai Xiaoxuan, deputy general manager of Zhejiang Topsun Holding Group, which makes outdoor sporting equipment, said his company could have grown much more quickly if bank loans were more easily accessible. "We are building a design center in Europe. A lack of funding is one of the main reasons that we didn't move faster," he said.

At a time when domestic economic growth is slowing and external demand shows no sign of picking up, funding is even more important for private businesses to help them weather the hard times, he added.

Back at the month-old private lending center, Xu Zhiqian was taking a last walk around before leaving the office at the end of the day. "I am confident about the future of the center," he said. "There is demand and there is supply - all that's needed is a suitable way of connecting them."

Contact the reporter at gaochangxin@chinadaily.com.cn