中国日报China Daily：Credit crunch
The banks themselves claim there is plenty of money available for small businesses in Wenzhou and they themselves are not to be blamed for the funding crisis.
Wenzhou Bank, the largest local bank, lent 15.6 billion yuan in the first 11 months of 2011, a 17.5 percent increase on the 13.27 billion yuan of the whole of 2010.
Bad debts have increased from 0.87 percent of all loans at the beginning of 2011 to 1.03 percent by the end of November.
At Xiaonan Road in Wenzhou, Miao Wenlin, vice-president of the Wenzhou branch of the Agricultural Bank of China (ABC), one of China's Big Four banks, says the availability of bank loans is not the key reason for the funding crisis.
"The typical small business does not rely on bank finance. It is only when businesses aggressively expand that they become dependent on bank loans," he says.
ABC in Wenzhou issued 2,758 loans to SMEs in the first nine months of 2011 with an average value of 20 million yuan.
Miao says 80 percent of these loans were for either 6 months or 12 months and were for working capital, which he says is typical in Wenzhou. "Most small companies use it to boost their working capital. Those who borrow money to invest in technology or plant and machinery are rare."
Some believe the banks are not being completely open and are adding to the funding crisis.
Since the crisis began to hit the headlines, the private lenders have been the ones that have often been demonized but that often ignores the important role they play in the economy, which even the mainstream banks admit.
This begs the question as to how easy it will be to regulate, if the government does attempt to control the moneylenders.
Hu believes that the schemes proposed by the local government in Wenzhou to get small businesses to register all private loans will not work.
"The actual characteristics of private lending are that it is hidden and basically free. It is also irreplaceable."
That it is irreplaceable is the essential problem as businesses try to steer their way through the Spring Festival period.
Many of them need the private lenders as well as the banks to start issuing new loans again - and fast.
The Chinese government has recognized the seriousness of the problem. Following a visit to the city by Premier Wen Jiabao in October, the State Council (China's cabinet) introduced a number of measures.
These included lowering the reserve requirement ratio specifically for small business lending so banks can lend more.
Other measures included tax concessions, including raising thresholds for when businesses have to pay various corporate and business taxes, and stamp duty relief.
The government said it would also boost the scale of specialized funds available to small businesses.
Some, including the Wenzhou Small and Medium-sized Business Development and Promotion Association, doubt whether these measures will provide the longer-term solution to the financing difficulties of the small business sector.
One of the big questions is how far the problems experienced in Wenzhou are indicative of a generalized funding crisis in China as a result of the government's credit-tightening policies.
Certainly, there are reports of problems in other entrepreneurial centers such as in Ordos in the Inner Mongolia autonomous region and Xiamen in Fujian province.
Joe Fuller, founder and chief executive of the Monitor Group, the global management consultancy, is one who believes it could put a brake on China's juggernaut economic growth.
Simon Eckersley, founder and CEO of Hao Capital, a private equity company with offices in Beijing and Hong Kong, says, however, it is wrong to see Wenzhou's problems as being unique.
He cites the problems that Western SMEs currently have in getting loans from European and American banks still trying to restore their balance sheets in the aftermath of the economic crisis.
What separates Wenzhou and China from many other countries is the level of non-bank private lending in the economy.
According to estimates by China's central bank, such lending could represent 4 trillion yuan ($632 billion, 487 billion euros) or 8 percent of all formal lending in the economy.
Much of this is dominated by people from Wenzhou. According to the forecasting organization IHS Global Insight, they have some 800 billion yuan of capital to issue as loans.
This sector is largely unregulated, consisting of consortia of small business owners and also private individuals sometimes lending to private individuals.
For many lending money at above-normal interest rates is a better investment than investing in equities or other financial schemes.
Over tea in the lobby of the Olympic Hotel in Minhang Road, Hu Zhenhua, professor of economics at Wenzhou University, paints a picture of the precariousness of this informal loans system.
"The whole system is based on A lending to B and B lending to C lending to D etc," he says.
"If D, however, flees the country, you get this domino effect where the whole system collapses. It is a crisis and it is probably getting worse."
The banks themselves claim there is plenty of money available for small businesses in Wenzhou and they themselves are not to be blamed for the funding crisis.
Wenzhou Bank, the largest local bank, lent 15.6 billion yuan in the first 11 months of 2011, a 17.5 percent increase on the 13.27 billion yuan of the whole of 2010.
Bad debts have increased from 0.87 percent of all loans at the beginning of 2011 to 1.03 percent by the end of November.
Pan Shifei, the bank's head of small business lending who cuts a youthful figure, was relaxed about the situation in his offices in Chezhan Road.
He adds it is not always straightforward lending to small businesses in the city because it is often difficult to assess the financial position of their businesses.
At Xiaonan Road in Wenzhou, Miao Wenlin, vice-president of the Wenzhou branch of the Agricultural Bank of China (ABC), one of China's Big Four banks, says the availability of bank loans is not the key reason for the funding crisis.
Miao says 80 percent of these loans were for either 6 months or 12 months and were for working capital, which he says is typical in Wenzhou. "Most small companies use it to boost their working capital. Those who borrow money to invest in technology or plant and machinery are rare."
Some believe the banks are not being completely open and are adding to the funding crisis.
Lu Peixin, executive director of Sunrise Capital, a private equity company, based in Wenzhou and Shanghai, says the bank statistics that show a growth in small business lending are misleading because they don't take into account other factors.
Since the crisis began to hit the headlines, the private lenders have been the ones that have often been demonized but that often ignores the important role they play in the economy, which even the mainstream banks admit.
This begs the question as to how easy it will be to regulate, if the government does attempt to control the moneylenders.
Hu believes that the schemes proposed by the local government in Wenzhou to get small businesses to register all private loans will not work.
That it is irreplaceable is the essential problem as businesses try to steer their way through the Spring Festival period.
Many of them need the private lenders as well as the banks to start issuing new loans again - and fast. Previous Page 1 2 3 Next Page
