China is set to revamp its financial sector

At the Lujiazui Forum held in Shanghai at the end of June, CBRC Chairman Shang Fulin said that there is 8.2 trillion yuan ($1.37 trillion) in wealth management products as of the end of March and 70 percent of them have been used in the real economy. But Lu disagrees.

"The 70 percent includes funds that flow to the property sector. If we exclude that part, we can see that very little flows into the real economy," said Lu.

"Many wealth management products don't have a clear direction of usage. No institutions can calculate how many of them flow toward the real economy except the regulatory agents," a source from a wealth management institution told Beijing Morning Post.

But the CBRC is working on the issue. It has issued a series of regulations on banks' wealth management products, including controlling the total amount, managing the usage of funds and guarding against risks. The next step is to link wealth products to real economy projects, establish a separate account for those products and offer open and transparent information about them.

Small and micro-sized enterprises are a vital part of the real economy, as they offer considerable employment opportunities. But they are also the most vulnerable in a slowing economy.

There are about 51 million small and micro-sized enterprises in China, but only 10 million of them can get bank loans, said Huang Yi, director of the CBRC's Supervisory Rules and Regulations Department.

"Small and micro-sized enterprises face lots of difficulties in financing, stemming from factors such as a lack of credit history," said Huang, who adds that the new guidelines will make it easier for those businesses to qualify for loans.

Courting private capital

Inviting private capital to the financial sector entails doing three things: encouraging private capital to participate in the restructuring of financial institutions; allowing mature and prudently managed rural banks to adjust the shareholding ratio within a certain degree; and encouraging private capital to establish financial institutions that shoulder responsibilities and risks by themselves, such as private banks, financial lease firms and consumer finance companies, according to the guideline.

During the three decades after China's reform and opening up in the late 1970s, the monopoly of the banking sector by state-owned commercial banks has never been fully broken down. Right now, private capital is searching for investment channels but is stifled in many ways.

"The State Council issued a 36-clause policy that allows private capital to the traditionally monopolized financial sector," said Jia Wolong, Chairman of the China Estate and Merchant Cooperation Association. "With mounting outcry from the general public to allow room for private banks in China, the guideline once again mentioned it. This showed a firm resolution from the Central Government to give the green light to open private banks. In 2013, maybe some private banks will emerge in the financial markets and people are really looking forward to it."

Bi Jiyao, Director of the International Economics Institute of National Development and Reform Commission, hailed the government's efforts to invite private capital into the financial sector.

"China's capital-thirsty small and medium-sized companies will find it easier to access loans once private capital sets up financial institutions."