On the 28th, Premier Wen Jiabao chaired a State Council executive meeting in which approved the overall program for the financial reform in Wenzhou City. A comprehensive financial reform pilot area will be established in Wenzhou City.
Wenzhou, located in the industrial province of Zhejiang and famous for its export activity in sectors like shoes or lighters, will be the testing ground for financial reform in China.
Wenzhou had regularly made the headlines of the newspapers in recent months as its financial system had become out of control. Because of very low interest rates on bank deposits, number of individuals there had created illegal banks, lending at very high rates to SMEs neglected by the major banks, prompting some of them to asphyxiation, and even suicide in several cases. A phenomenon important enough to push the Prime Minister himself, Wen Jiabao visiting the city last October.
Last night, the Chinese State Council has announced it will launch a number of financial reforms in Wenzhou. A pilot approach reminiscent of the method used by economic opening of China for thirty years. The credit of individuals will be lawful to finance SMEs. It may also, under certain conditions, be invested in projects abroad, which is a significant breach in theoretically closed Chinese capital account. The reform is complex to implement, but now is regarded by economists as essential to the further development of the country.