Liu Mingkang, the chairman of the China Banking Regulatory Commission, told the Lujiazui Forum, an annual gathering of top Chinese financial officials and executives, that big Chinese companies were leaving banks as they can seek funds from other channels.
"Supporting small companies, however, can diversify risks for banks and improve their marginal returns," Liu said. China has been reining in bank credit following a 10 trillion yuan lending spree in 2009, but many economists have said tighter credit policy is hurting small private sector firms.
Liu said banks must help create a fair play environment in China so that state companies and private businesses can compete equally for bank credit. He added that China's banking system must be prepared to handle the impacts from massive cross-border capital flows, but did not elaborate. Yale University professor Chen Zhiwu told the forum that with banks cutting loans to them, private firms in places like Wenzhou are turning to underground lenders, which may charge annual interest rates as high as 70 percent.
"There is a double-track interest rate system in China, with state-owned enterprises able to obtain much lower interest rates than private firms," Chen said. Andy Xie, an independent economist who previously worked for Morgan Stanley, said Chinese banks still prefer state-owned borrowers. "State bank executives and state company leaders are naturally close to each other," he said.