China Helps Private Firms to Stay out of Debt Problems

A prominent Chinese entrepreneur who fled the country due to a debt crisis has returned home. The Chinese government has promised to help private firms to facilitate raising capital and allow these firms to borrow more money from banks during the current liquidity 1 crunch 2.

Wei Tong has more.

 

Hu Fulin, president of China's largest eyeglass manufacturer in Wenzhou, fled to the United States in late September, leaving 236 million US dollars in debt owed to both Chinese banks and individual creditors 3.

Wenzhou is a coastal 4 city in east China's Zhejiang province where private business is flourishing. It boasts a large-scale credit and debt market, amounting nearly 20 billion US dollars. Over 60 percent of private companies run businesses through loans. The loans will help the firms to raise capital but the high interest rate has made some debt-laden companies difficult to repay the debts. Hu Fulin's eyeglass company is one of them.

"The money that I am borrowing from other banks to pay off the debt is very hard to be approved. So I have to wait, but the previous loans were due already, which marks a broken capital link. I have no other choice but to leave the country."

Hu Fulin said upon arriving in Wenzhou, he hopes his company can overcome the current difficulties with more favorable government policies for private firms.

The Wenzhou Small and Medium-sized Enterprises Development Association says that more than 90 private entrepreneurs have gone into hiding in recent weeks to avoid repaying high-interest informal loans.

Zhou Qingming is deputy director of Wenzhou Branch of China's Banking 5 Regulatory Commission.

"We urge banks in Wenzhou not to cut loans for the small and medium-sized enterprises, especially those that are running well but facing capital shortages."

Meanwhile, the local authorities have promised to crack down on demanding repayment 6 of debt by force. And illegitimate underground lending institutions will be banned.

With the on-going debt crisis, small and medium-sized enterprises in Wenzhou have agreed to unite to stay out of the debt problems. Huang Congdi, from Wenzhou Service Center for Private Capital & Investment, explains.

"If the companies are united, they will be more powerful in tackling the difficulties. We have offered 190 million yuan, or around 30 million US dollars for 14 enterprises, some of which are on the brink 7 of bankruptcy 8 to pay off the debts."

Analysts 9 say the Wenzhou debt crisis is an extreme case of private firms struggling to survive the liquidity crunch resulting from the country's current macroeconomic control policies, which have been designed to cool inflation and rein 10 in the runaway 11 property market.

For CRI, this is Wei Tong.