Note: Some regions (except for Wenzhou) of Zhejiang Province initiated pilot programs of private capital management companies since September 2012, such as Cixi City, which issued the Tentative Measures for Managing Pilot Service Companies of Private Capital Management in Cixi (No. 155, issued by Cixi Government Office [2012]). Source: organized by the author.

2.Regional differences in the progress of advancing pilot programs, with the industrial scale of Shandong Province already accounting for about 80% of the nation’s total

There are remarkable regional differences in the progress of advancing the pilot programs of private capital management companies (Table 2). Among all the areas, Shandong Province witnesses a fast growth and biggest industrial scale of private capital management companies. By the end of 2014, the number of private capital management institutions of Shandong has reached 601, with registered capital of 33.525 billion yuan, up by 237.64% and 209.84% from the year 2013, respectively. The number of private capital management companies and their registered capital represent 150.25% and 67.08%, respectively, of the number of small loan companies and registered capital in Shandong over the same period, which is an increase of 100.39% and 40.88% respectively compared with 2013. Shandong Province accounts for about 80% of nation’s total in terms of its number of the companies and amount of the registered capital in the same period. Yunnan Province as well witnesses rapid development since it launched its pilot companies early in 2014. By the end of September 2014, its number of institutions and registered capital reached 77 and 6 billion yuan, respectively. In contrast, areas with earlier launch than Yunnan, like Wenzhou of Zhejiang Province and Quanzhou of Fujian Province, show a relatively slow progress in advancing the pilot companies.

Table 2 Basic Information of Private Capital Management Companies in Main Pilot Areas

Source: Shandong Finance Office, Yunnan Finance Office, Quanzhou Finance Bureau, Wenzhou Finance Office.

Regional differences in the progress of advancing the pilot companies can mainly be attributed to different regional policies and efforts. As for policies, Shandong practices, in general, relatively loose and reasonable policies. As for the requirements of minimum registered capital, Shandong places the lowest threshold of 30 million yuan, lower than that of local small loan companies, which helps stratify private financial organizations. As for the shareholding ratio of the main promoters, Shandong also exhibits sufficient flexibility and generality in its policies. On the one hand, Shandong sets the maximum and minimum equity proportion by main promoters (up to 51%, and no less than 20%), in an aim to prevent “dominance of one shareholder”, avoid the drawbacks of dispersed ownership in corporate governance performance, and prevent business failure risks caused by shareholders from spreading to private capital management companies. On the other hand, for companies with a certain level of risk appetite and also qualified for some conditions (i.e. registered capital of over 300 million yuan, main promoters’ assets of over 3 billion yuan, liability-asset ratio below 65%, profitable for two consecutive years, and registered in Jinan or Qingdao), Shandong has relaxed the upper limit for shareholding. As for financing, besides placing higher leverage, Shandong has established three financing channels such as shareholder’s loan, introducing holders of preferred shares, and private placement.

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①In November 2011, Wenzhou government issued “Opinions On Further Accelerating the Innovation and Development of Local Financial Sector in Wenzhou” and proposed to launch pilot programs of private capital management companies in the areas with moderately developed economy, active private capital, insufficient formal financial institutions, and with radiation effects of economies of scale. In February 2012, the first private capital management company in China was set up in Wenzhou.

②The term “Two Abundances and Two Difficulties” refers to the abundance of private capital and the SMEs as well as the difficulties in investment and in financing.

③According to the “Overall Plan for Gui’an New Area of Guizhou Province”, Gui’an New Area will also initiate pilot programs of private capital management companies.