Nasdaq listing of microcredit firm reflects reform effort

China Commercial Credit provides loans to small businesses and farmers in JiangsuNo one can accuse the People's Bank of China, the country's central bank, of being gun-shy about reform.迷你倉新蒲崗A big step in the reform of the nation's finance sector under the PBOC came with the listing on the Nasdaq in the United States last week of China Commercial Credit (CCC), a little-known microcredit firm that makes loans to small firms and farmers in Jiangsu province.Run by former central banker Qin Huichun, the listing raised US$89 million and, on the first day of trading, the stock closed at US$6.39, down from its issue price of US$6.50.Hardly a stellar beginning, but Qin, who worked at the central bank's Suzhou branch from 1981 to 2008 and served as a deputy director at the State Administration of Foreign Exchange's Jiangsu branch between 2006 and 2008, now has his eyes on acquiring a US bank.There are about 5,600 microcredit companies in China with total outstanding loans as of September last year of more than US$80 billion, according to CCC's listing document, which cited PBOC research.The purpose of the capital raising was simple. The company wanted to boost its balance sheet and strengthen its lending capability.Its relationship with Agricultural Bank of China is intriguing, with borrowing rates of no more than 110 per cent of the benchmark interest rate, suggesting that the small firm has received favourable treatment, probably due to Qin's connections.Taking the central bank-set one-year lending rate as a reference, the lender can borrow from Agricultural Bank at 6.6 per cent annually, allowing it to lend to cash-strapped small and medium-sized firms and farmers in need of short-term financing.That compares with an average premium of about 50 per cent above the benchmark lending rate that mo迷你倉出租t SMEs in China pay, with some paying 200 or 300 per cent above the benchmark rate. Large state-owned firms enjoy discounts of at least 10 per cent on the benchmark rate.Critics doubt the listing was a step towards breaking the dominance of the Big Four state-owned banks on the mainland. The Big Four control about 80 per cent share of the mainland's banking assets.The idea expressed by former paramount leader Deng Xiaoping's famous motto "crossing the river by feeling for stones" remains influential among China's new generation of leaders. Thus, any trial programme may flourish or die but the determination to reform the system persists.Premier Li Keqiang is expected to continue tackling the financial reforms that economists view as the hurdles keeping the economy from growing sustainably.Artificially low borrowing rates have financed a large number of unproductive projects, which has led to bad loans.Leaders in Beijing who understand such issues allowed two wealthy provinces – Shandong and Jiangsu – to issue bonds directly last month, easing their reliance on bank loans.Meanwhile, last week's modest initial share sale in the US reminds us of our recent conversation with microfinance banker Joe Zhang, who has ventured into the shadowy and little-regulated world of non-bank lending, which is considered by many to be risky.Zhang, a former central banker, said shadow banking on the mainland – consisting of unregulated trusts, personal lenders and pawn shops – was flourishing because of the negative real interest-rate environment. Such conditions have encouraged bets of projects offering attractive returns.So, despite worries about its reform effort, observers should see the steps China is taking as promising. Each new stepping stone is creating a path across the river.ray.utchan@scmp.com儲存倉