China's Wen urges end to banks' lending 'monopoly'

China's Premier Wen Jiabao has called for the break-up of a banking "monopoly" on lending that has prevented businesses from borrowing the money they need to expand, state media reported.

Wen said the government needed to "break this monopoly" to ease the flow of private capital in the world's second-largest economy, in comments published on the China National Radio website early Wednesday.

"In regards to financing costs, let me honestly say that our banks are making a profit too easily. Why is this so? It's because a few big banks are in a monopoly position," he said during a visit to southern China.

"Only when we approach these banks can we successfully get loans, if we go to other places it is very difficult.

"What we can now do to ease private capital flow into the financial system, fundamentally speaking, is to break this monopoly."

China has seen an explosion in underground lending fuelled by credit restrictions, raising concerns among top leaders about a surge in bad debts and defaults in the private sector.

Independent business owners have been borrowing money at high interest rates from informal lenders after being rejected by major banks, who favour other state-controlled enterprises because their debts are implicitly guaranteed by the government.

Wen also said an experimental package of financial reforms introduced in the eastern city of Wenzhou to help struggling private firms could be expanded nationwide.

Those reforms included encouraging state-owned banks to lend more to small firms and allowing private companies to issue corporate bonds to raise funds.

Wenzhou, which has 400,000 private companies, has earned a reputation as the centre of China's private economy.

It was hit by a debt crisis last year when more than 90 bosses of private companies fled after being unable to repay crippling debts as the economy slowed. (AFP)