Research Student: Lerong Lu
The Regulation of Private Lending in China
The private lending is currently prevalent in China, and it involves lending and borrowing which operates outside the realms of the official banking system. Private lending is an important alternative financing channel for private-owned businesses in China, particularly small and medium-sized enterprises (SMEs), as it is difficult for them to borrow money from China’s state-owned banks which prefer to make loans to other state-owned enterprises or government-back projects. According to one estimate, the market scale of China’s underground lending market amounted to 5 trillion yuan (US$806 billion). Private lending is also considered as a vital part of China’s shadow banking system which is almost unregulated by the authority.
Clearly, the insufficient regulation caused several problems regarding private lending in China. For example, in 2011, there was a private lending crisis happening in China. Thousands of enterprises became insolvent as they were unable to repay the expensive private loans under the worsening economic conditions. Many bosses chose to run away to evade from debts, even including CEOs and Chairmen of public listed companies. Moreover, a lot of investors who are ordinary households suffered a great loss from the default waves.
Therefore, my research aims to propose a regulatory framework for the private lending market in China, and it will mainly answer following questions:
- To explore the concept, origin, historical development and special characteristics of private lending practices in China;
- To analyse the private lending crisis in China in 2011 which caused a large number of insolvent enterprises and runaway bosses, and resulted in heavy losses of many investors;
- To conduct a study of China’s legal framework regarding private lending , to see its effectiveness and drawbacks;
- To examine China’s recent financial reform to regulate private lending, and improve private businesses’ access to finance;
To explore alternative finance channels outside the banking industry for smaller businesses in the UK, as well as their relevant regulatory frameworks.
I am now a module assistant at the Leeds Law School, and responsible for teaching the undergraduate module – Banking and Financial Services Law (LAW2016).
Education and Professional Qualifications
LLM (with Distinction), International Banking and Finance Law, University of Leeds
LLB (with First Class), Civil and Commercial Law, East China University of Political Science and Law
BSc Economics, Finance, East China University of Political Science and Law
Admission to the China Bar
Lu L, Private Banks in China: Origin, Challenges and Regulatory Implications, Banking and Finance Law Review, 2016 (Accepted)
Lu L, ‘Runaway bosses’ in China: Private lending, credit crunches and the regulatory response, Financial Regulation International, Vol 18.9, 2015, London: Informa Law, ISSN 1473-3323. URL: https://www.i-law.com/ilaw/doc/view.htm?id=359736