The draft plan for a private- financing and management regulation in Wenzhou has been handed by the city's finance office to the Zhejiang provincial government for final review, with legislation expected by September.

According to the Securities Daily, under the new regulation the annual loan interest rate will be capped at 48 percent, with banks that breach the new rule facing an administrative penalty.

"The bank interest rate will be more flexible when regulated by a 48 percent limit, meeting changes in the market after it is launched," said Li Youxing, professor at the Guanghua Law School at Zhejiang University and a member of the team working on the regulation.

Li said the regulation will promote development of the private-financing environment and boost the real economy by setting up a monitoring system to record registration for loans.

The regulation also includes a consulting measure under which related departments of the local industrial and commercial bureau must seek permission from the private-financing management organization before issuing business licenses to underwriting companies, pawnshops, investment consulting companies and others.

Li said, "The regulation is expected to become law in September."

Wenzhou was selected for the financial reform pilot project at the end of March 2012 to regulate the collapsing private-financing system following a crisis arising from widespread loan defaults by many hard-pressed factory owners and investors.