He said the verdict in Wu's case might serve as a warning to people involved in private lending markets, but the measure might not prove effective in the long run.

Wu Ying [file photo]

"It is better to make clear policies and laws to legalize, regulate and guide private financing than suppressing it, because there is always a need for borrowing and investing outside banks or financial institutions," he said.

The verdict also sparked widespread controversy over private financing and underground lending in Zhejiang, a bustling coastal province flush with cash, which has also witnessed increasing crime related to private lending and borrowing in recent years.

In Jinhua, where Wu set up the business, cases of illegal pooling of public deposits surged from seven in 2008 to 34 in 2009, and the number of crimes of fraudulent fundraising cases jumped from one in 2008 to five in 2009, according to a Zhejiang University report on private financing in Zhejiang province.

At the same time, more small loan companies were set up as residents tried to avoid undocumented private lending in Jinhua and other cities in Zhejiang, according to the report.

In Wenzhou, private lending reached to about 110 billion yuan, according to a study by Wenzhou financial management authorities in September 2011.

Money lenders said they are paying close attention to Wu's case because the verdict may affect future trends in underground lending markets.

Hua Xiang, an underground money lender in Wenzhou, said she stopped lending money in November. "About 7 billion yuan was unpaid, because the borrowers either ran away or simply have no money," Hua said.

However, Hua said the severe punishment would not help lenders.

"The gone money is gone. Even if the borrowers are sentenced to death, I won't get it back," Hua said.

Tu Shanshan (not her real name), a businesswoman in Lishui, Zhejiang province, who used to borrow from underground lending markets, said Wu's case has deadlocked money borrowers.

"In the past, borrowing money was all about investment and business, but now if you fail to run the business well, you might be charged with cheating and get jailed or even sentenced to death," Tu said.