A Monday report has urged for the increased use of legal methods to regulate private loans following a number of incidents in which the leaders of large companies were unable to pay back informal high-interest loans, forcing some of the companies to the edge of bankruptcy.
"It's of urgent importance now to strengthen legislation and law enforcement in order to regulate private loan activity and crack down on high-interest loans," said the "Annual Report on the Development of Rule of Law in China," which was released by the Chinese Academy of Social Sciences.
Wenzhou, a city in east China's Zhejiang province that is known for its booming private sector, has been heavily affected by the private debt crisis.
Last year, more than 90 leaders of private companies in the city were reported to have disappeared, committed suicide or declared bankruptcy -- invalidating debts of about 10 billion yuan (1.57 billion U.S. dollars) owed to banks and individual creditors pooled from the informal lending market.
According to the report, the current law system doesn't have a legal document that specifically concerns private loans, and related regulations have fallen behind social practices.
"Inadequate supervision has also contributed to boosting interest for private loans. In some areas, the loans were associated with gambling and organized crime groups, resulting in incidents of violence," the report said.
The report urged authorities to create regulations concerning private lending and establish policies for loan management and risk control.