A difficult but necessary beginning to recovery

Despite financial reforms, small firms in Wenzhou are still struggling with a shortage of capital

Editor's Note: Wenzhou is marking the first anniversary of landmark financial reforms that are not only of great importance to this center of private enterprise but also to the many other cities and regions that are poised to restructure their own capital markets. Much has been done and much more is expected as the program enters its crucial second year. China Daily is running a series of stories to review these changes:

One year ago, Wenzhou embarked on an ambitious venture of financial reform amid great fanfare.

It was an occasion of significance because it promised to reshape this entrepreneurial hotspot by providing capital for the development of high-value-added sectors to replace struggling low-cost, labor-intensive manufacturing industries, funded largely by an underground money market that had collapsed due to mounting defaults.

Over the past 12 months, the local government has moved quickly to establish the necessary facilities for lenders and borrowers to do business in an environment where transactions are documented and registered. But so far, neither lenders nor borrowers have warmed to the idea of reform.

This is going to change.

The government has initiated the process of passing laws that are expected to give much-needed legal support to the reform program.

In addition, it is poised to step up its efforts to enhance the benefits of reform in terms of fairness and transparency. Government officials interviewed for this story said they are confident that this twin-track approach will fundamentally change the way of doing financial business in Wenzhou.

Officials in charge of the reforms know that it's more than personal pride that's at stake. The fate of the Wenzhou experiment has much wider implications that extend beyond the city. The experience gained here is being closely watched in other cities and regions as they consider launching their own financial reforms.

"This pilot reform in Wenzhou must succeed," said Cen Li, general manager of the government-sponsored Wenzhou Financial Investment Group, which is in charge of Wenzhou Financial Reform Plaza. "The whole nation is watching us."

Brushing off the initial doubts about the reform, People's Bank of China Vice-Governor Pan Gongsheng said recently: "The overall effects of the pilot reform in Wenzhou will require some time for further observation."

In Wenzhou, Zhang Zhenyu, director of the city's financial office and the official in charge of the reforms, said: "We've been trying to move forward the reforms following last year's work, and we're getting prepared to launch new initiatives."

He declined to disclose detail of the planned initiatives. But sources familiar with the plan said the final draft of new regulations on private financing and management by the city's finance office was submitted for review in November 2012 to the Zhejiang provincial government. They said they expect the draft to be approved soon.