Wenzhou needs further legislation and major policy endorsements to provide new momentum to its widely watched financial reforms, the city's mayor said on Wednesday.

Those endorsements include allowing individuals in the coastal city to invest abroad directly; granting the numerous small-sum loan companies "financial institution" status; and enacting a law to institutionalize current private lending, Chen Jinbiao said.

All of the above initiatives are beyond the authority of Wenzhou's local government.

"We've made many efforts and initiatives, but in terms of law and major policymaking, it still requires State-level backing," Chen said.

The latest effort by the Wenzhou government was a draft legislation on private lending, which the Zhejiang provincial legislature has yet to approve.

The draft stipulates that loans with an annual interest rate of more than 48 percent should be considered usury, Shanghai Securities Daily reported.

On March 28, 2012, China granted the private business hub the status of a "comprehensive financial reform pilot zone", after massive defaults and a bad-loan crisis broke out in this city. This has ignited hope that the city's reforms will shed light on the reform path of the private financing and investment regime.

But one year after the reform kicked off, local private business and academics said they see no substantial progress and improvement of the debt crisis, as the number of bad loans continues to rise and cash-strapped small and medium-sized enterprises still find it difficult to get loans.

According to statistics from the Wenzhou banking regulatory bureau, the bad-loan ratio in Wenzhou's banks rose 0.04 of a percentage point to 3.79 percent by the end of January.

Loans made through Wenzhou's private lending registration service center, a platform set up by the local government that was supposed to replace the underground banking system, totaled 423 million yuan ($68 million) by this February, a drop in the ocean compared with the size of the city's private capital.

"There is big gap between current progress and public expectation, the current service system and the demand of the SMEs, the ultra-active private lending activities and the present weak regulations," Chen said.

He said the major challenge is making the previous underground banking system "exposed to the sunshine", or putting it within a legal framework.

But Chen was also frank about the difficulties: still reeling in the aftermath of the previous financial crisis, private lenders with abundant cash were reluctant to lend money, fearing the previous "borrow, trapped, run away" scenario will recur.

"Most of them are still holding a wait-and-see attitude. They will not lend out their money unless a sound institutional environment is built. But this takes time," Chen said.

He said the government will foster more intermediary agents such as credit-rating agencies, equity trading centers and financial arbitration agencies.

Chen also suggested the Credit Reference Center set up by the People's Bank of China, the country's central bank, be open to small-sum loan companies.

Currently, the credit information in the reference center does not contain much information on SMEs and is not available to small private lenders. They will have to turn to more expensive private credit reference centers if they want to get information about their borrowers.

Chen, a deputy to the National People's Congress, the national legislature, also has submitted a motion that asks the State to allow individuals to invest outbound directly, a bold move under China's current capital account management system.

Chen's proposals were echoed by private entrepreneurs from Zhejiang during the ongoing NPC session.

Zheng Jianjiang, president of Aux Group, an electrical appliance manufacturer and an NPC deputy, suggested that the nation should give the small-sum loan companies "financial institution" status.

"The current small-sum loan companies are ordinary companies registered under administration for industry and commerce, not financial institutions. This means that fraud and abuse of power by staff in small-sum loan companies could not be investigated for criminal responsibility, as it does in financial institutions," Zheng said.

zhengyangpeng@chinadaily.com.cn