Social capital and folk lending in China’s hottest financial market

W. Selmier

Economic and Political Studies, 2018, vol. 6, issue 1, 69-90

Abstract: In 2011, responding to a credit crunch, Wenzhou became the first and only municipality to institute complete financial reform. Wenzhou had been the fastest growing municipal economy in China’s fastest-growing province for two decades. But the global financial crisis hit hard the informal financial networks which funded small and medium-sized enterprises. The so-called ‘Wenzhou model’ has long been dependent on financial capital from other parts of China funnelled through these networks to fund local entrepreneurs, especially the person-to-person financing known as folk lending. These informal financial networks relied heavily on interpersonal connections, reputation and trust, the major ingredients of social capital in banking and finance. In order to generate the social capital lost in the credit crunch, Wenzhou created government financial intermediaries, but these have not had much success. However, peer-to-peer on-line financing companies (P2P platforms), established concurrently by private entrepreneurs with little capital, have been highly successful. In effect, P2P platforms have capitalised on the ‘Wenzhou model’ by using the Wenzhou brand name to create a new form of financing network channel.

Date: 2018
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DOI: 10.1080/20954816.2018.1426361

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