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The underground credit market is estimated by China's central bank and private sector analysts at 2 to 4 trillion yuan ($325 to $650 billion), or as much as 7 percent of total lending. In some areas, informal lending exceeds that of official banks. In 2011, only 19 percent of bank lending went to small businesses, while total loans fell 6 percent from 2010, according to the official Xinhua News Agency. Many households provide money for private lending in an effort to get a better return than the low deposit rates paid by Chinese banks, which effectively force depositors to subsidize low-interest loans to state industry. Protests erupted in 2011 and early 2012 in cities and towns throughout central China and along the southeast coast, areas with large concentrations of small private businesses, after the downturn in global trade triggered a wave of defaults. Schoolteachers, retirees and others who had lent to entrepreneurs demanded authorities get back their money. Regulators also worried banks and state companies had gotten involved in underground lending, exposing the official financial system to unreported risks. The Cabinet announced a pilot effort last year in Wenzhou to test more closely regulated private lending. "The greatest significance of Wu Ying's case is the way it has sped up the pace of reform of private financing," said the Dui Hua Foundation. "There will probably be many more
'Wu Yings' in the future, but no one hopes to see any more 'Wu Ying cases.'''
[Associated
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