Really, you can’t make this stuff up. There has been a steady news stream about Wenzhou businessmen who – not being able to get funding from banks thanks to recent clampdowns by the government – borrowed to the hilt from loan sharks to “keep daily business operations going” (aka speculate on property) are either a) running away or b) committing harakiri after coming to the realisation that either option is better than being paid a visit by the local Ah Loongs, many of whom are linked to local officials.
But now, the crowning glory is that the Premier himself has issued an emperor’s edict from the mountain: that ALL business debt from informal lending sources (aka Ah Loongs) can now be considered fully forgiven (i.e. They will now be hunted down and killed by the government). Better yet, the Premier has also re-opened the funding taps from local banks, so that the speculative party can get started again, at lower interest rates.
If we were betting men living in Wenzhou and all and any other cities in China for that matter, we would now be borrowing double the amount from BOTH loan sharks and local banks, because we know that we will get solid-gold government guarantees that a) we will never have to pay back the loan sharks and b) the local banks are going to keep the taps open for the indefinite future.
Risk on, baby!
From ChinaDaily “China ensures bank loans to help private sector“
WENZHOU, Zhejiang — Authorities in Zhejiang province have sent 11 work groups to oversee a bank bailout of private firms suffering from a liquidity crunch in a coordinated move to tackle the Wenzhou debt crisis.
A spokesman with the provincial government said on Tuesday that 25 banks in Wenzhou city have pledged to increase lending to bolster private firms to weather the debt crisis.
During a visit to Wenzhou on Oct 5, Premier Wen Jiabao asked banks to lend more money to small firms and tolerate higher levels of debt. He also requested a crackdown on the high-interest informal lending market.
By Tuesday, three of more than 90 private entrepreneurs who had gone into hiding in recent weeks to avoid repaying high-interest informal loans returned home.
The local business community said the Wenzhou debt crisis is an extreme case of small- and mid-sized private companies (SMEs) struggling to survive the liquidity crunch resulting from the country’s current macroeconomic control policies, which have been designed to cool inflation and rein in the runaway property market.
Under the government’s coordination, banks have also increased the lending ratio to SMEs.
Tao Lingfu, head of the Wenzhou branch of the Bank of China, promised the bank would continue to issue loans with interest rates lower than 30 percent to corporate borrowers that are having liquidity problems but able to sustain production.
Meanwhile, industry associations have also taken measures to provide financial assistance.
Zhou Dewen, chairman of the Wenzhou SME Development Association, said the association has prepared an emergency fund worth 900 million yuan ($141 million) to help private firms in urgent need of cash to sustain operations.
“The association’s member companies would make donations to the fund,” he said.
Zhou said about half of SMEs in Wenzhou have difficulties in borrowing from bank and are forced to obtain capital from the unofficial lending market, despite the danger of high interest.
“Many of the firms are labor-intensive manufacturing firms making narrow profits from the mass production of small commodities such as eyeglasses, clothing, shoes and lighters,” he said.
Among the three returned absconders, Hu Fulin, president of China’s largest eyeglasses manufacturer, the Zhejiang Center Group, is the biggest debtor. He fled to the United States from Wenzhou on Sept 21, leaving 1.5 billion yuan ($236 million) in debt owed to both Chinese banks and individual creditors.
Hu said upon arriving at an airport in Wenzhou on Monday that he hopes his company can overcome the current difficulties with the government’s support.
Chen Derong, vice-governor of Zhejiang province, pledged that the government will ensure Hu’s personal safety, as well as that of his assets.
“The government will provide support to help companies that are trapped in the financial crunch but have the ability to survive these difficulties,” Chen said.
Another runaway company leader Sun Fucai, chairman of the board of the Aomi Fluid Equipment Co Ltd, also returned to Wenzhou on Monday.
“I don’t want to spend the rest of my life living in the dark,” he said.
Hu Jianjin, an official in Dongtou county, Wenzhou, said Sun’s firm, which makes high precision sanitation pumps, valves and pipe fittings, has great market potential. The county government will help the company get enough loans to emerge from its current plight.
Sun’s company, founded in 2003, has 100 million yuan in debt to banks and informal lenders. As banks limited the lending amid the country’s current macroeconomic control policies, the company’s capital chain broke. He went into hiding on Sept 11, when he sent his staff on a vacation trip to a scenic spot.
“I will be more cautious in maintaining the cash flow if I can resume the company’s operation,” Sun said.
