A difficult but necessary beginning to recovery

In the past two years, there have been reports of Wenzhou factory owners fleeing abroad, leaving behind piles of debt and scores of unpaid workers. The wave of defaults practically wiped out the underground lending market and triggered the outbreak of a local financial crisis that prompted the government to intervene.

Financial officials in the city have established a host of facilities, including several lending platforms that seek to facilitate an orderly and well-supervised flow of capital.

These facilities are supposed to take away the function of the underground banking system that teetered on the brink of collapse early last year.

The infrastructure includes Wenzhou's Private Lending Registration Service Center, Wenzhou SME Financing Service Center, a financial reform plaza, two related financial development zones and a number of high-tech zones in three districts of the city.

Although the full impact of these platforms has yet to be felt due to flagging confidence among moneylenders and borrowers, improvements have been made to protect moneylenders.

A policy was issued at the end of February by the city government, stating that courts have to directly handle disputes if people involved in the case are already registered with the service center.

"It will be a big move to drag the private lending activities out from underground to be regulated and protected by the laws," said Xu Zhiqian, general manager of Wenzhou's Private Lending Registration Service Center.

The center has remained relatively empty since its launch in April 2012.

The 2,300 square meter service hall is usually very quiet, with dozens of cashiers sitting in front of computers with little to do.

According to the latest statistics provided by the city's finance office, the private lending center has offered around 390 million yuan to local individual borrowers, the majority of whom are owners of struggling SMEs, with a borrowing rate of only 33.17 percent. The total amount of money that registered lenders offered exceeded 1.3 billion yuan with few takers.

A joint conference system was launched on Tuesday to create an information platform among the city's financial-related departments and Wenzhou Intermediate People's Court to monitor and regulate illegal financial behavior.

"Hopefully those measures will convince more moneylenders and borrowers to register at the center," said Xu.

Business skepticism

Despite official enthusiasm, the Wenzhou business community has remained skeptical.

"The financial reforms have resulted in hardly any positive changes for manufacturing companies, which are still struggling with financial problems," said Zheng Chen'ai, president of Wenzhou Garments Association.