A third of SME capital is from private loans

An audit report has found one third of the capital needed for small and medium-sized companies came from private lending in 2011, China’s top auditor said on Wednesday.

The investigation, which analyzed 746 companies nationwide, revealed a serous lack of capital for small and medium-sized enterprises to borrow. The companies were in debt to the tune of 13.5 billion yuan ($2.1 billion) owed to private lenders. This amounted to half of the loans they received from banks.

Of the audited loans, nearly one quarter of private lending was borrowed at an interest rate four times higher than the one-year benchmark interest rate.

The investigation was undertaken following a high-profile lawsuit that resulted in businesswoman Wu Ying being sentenced to death with a two-year reprieve last month.

Wu was charged with illegally raising up to 770 million yuan ($122 million) from 11 lenders with the promise of high returns from 2005 to 2007. Some believe she was innocent because the money was borrowed from friends.