Domestic
Small, mid-size firms facing financial strains in Wenzhou
By Yu Ran (China Daily)
Updated: 2011-02-17 10:13
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Employees manufacturing footwears at Hashan Shoe Plant in Wenzhou, Zhejiang province. [Photo / China Daily] |
SHANGHAI - Small- and medium-size enterprises (SMEs) in Wenzhou are faced with severe cash-flow problems as they find it hard to access bank loans or personal loans due to tight lending policies.
"A recent survey found that over 70 percent of 1,000 enterprises in our association have severe financial problems and only a few managed to get enough money to finish orders," said Zhou Dewen, the head of the Wenzhou Small- and Medium-sized Enterprises Promotion Association.
Zhou said many enterprises are borrowing money from all available sources to keep their businesses running and to fulfill orders from their clients.
Many SMEs are borrowing money from the gray market private money lenders for short-term financial needs.
Borrowing money from the gray market in Wenzhou was the last option for Zheng Songtian, who owns a factory manufacturing leather products for export.
"I needed money to pay my workers and suppliers as I was cash-strapped due to a delay in payments from two-thirds of my overseas buyers," Zheng said.
The interest rate he had to pay the lenders, at the monthly rate of 10 percent, which goes up as much as 240 percent a year, was exorbitantly high. But "I had no choice. The regular banks weren't interested in my business," he said.
Guarantee companies, who serve as an agency between banks and borrowers, make profits by skirting the law and lending money at exorbitant interest rates after taking savings from individuals.
Wenzhou is turning out to be a hotbed for such lending activities, mainly due to the large availability of private funds anxiously looking for investment opportunities.
According to a survey released by the Wenzhou branch of the People's Bank of China, in the second quarter, about 89 percent of families or individuals and nearly 57 percent of enterprises participated in the non-bank personal lending deals.
"The bank loan application takes at least one month, apart from going through cumbersome procedures by providing contract details. Therefore, local businesses that need short-term credit choose the gray market with options of daily or monthly interest rates," said an owner surnamed Ding who is involved in regular private deals between individuals and local enterprises.
China introduced credit guarantee agencies in the mid 1990s. Initially these agencies were mainly government invested and policy driven, charged with improving loan access for local SMEs. At the moment, there are some 240 guarantee agencies, asset management and investment consultancy firms in Wenzhou.
According to the official statistics released by Wenzhou municipal government, there is more 600 trillion yuan ($91 trillion) of 'hot money' in the personal loan market. However, it is very difficult for small- and medium-sized enterprises to afford the high interest loans that were raised by the guarantee companies for local residents.
Zhou urged that greater attention and financial support are needed to ease the problem facing SMEs. "Although the tightening policy toward bank loans and personal lending is applied to prevent inflation, the development of SMEs also needs to be considered otherwise there are fears that a large number of them may collapse."
"At the moment, we're working on a detailed plan to provide a monitoring platform for guarantee companies to deal with legal businesses in the gray market," said Huang Shoujun, director of the small- and medium-sized enterprise department at Wenzhou Economic & Trade Commission.
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