China: Wenzhou’s financial reform fails to bear expected fruit; Wenzhou’s courts are currently in the processes of handling private debt collections exceeding 50 billion yuan (US$8 billion), while the total of private debt in the city has reached 100 billion yuan (US$16 billion)

Wenzhou’s financial reform fails to bear expected fruit

Staff Reporter, 2013-04-08

On the first anniversary of the State Council’s decision to set up the Wenzhou financial reform zone, an official has admitted that the program has not attracted robust investment as previously expected, the Beijing-based Economic Observer reports.Wenzhou’s reforms have yet to have the same kind of effects seen in cities like Shenzhen to make the Zhejiang city a unique lending environment that can better attract investment, Zhang Zhenyu told the weekly.

Augustus Shoes, a major shoemaker in the city, announced bankruptcy in March with debts of 157 million yuan (US$25 million), while many others are close to collapse, reflecting grim prospects for the city’s economy, the report said. Companies have been unable to get loans from state-owned banks, and have resorted to private loans with high interest rates, often ruining the company’s chances for success and creating a vicious debt cycle.

The government announced a series of financial reforms in Wenzhou last week, including setting up a financing re-guarantee center for small and micro businesses, an emergency funds management committee, and two bill finance companies. These new organizations indicate the government’s support for cleaning up the city’sprivate lending problems, Zhang said.

On the same day, the Longwan farmers’ union, which had deposits of 15.5 billion yuan (US$2.5 billion) and loans of 15.3 billion yuan (US$2.4 million), announced its transformation into an agricultural finance business after absorbing private funds worth 800 million yuan (US$129 million).

The government invested 1 billion yuan (US$161 million) last year to set up an emergency lending fund, also absorbing private funds worth 500 million yuan (US$81 million) in the project. Together they have generated a financing effect of 18.4 billion yuan (US$3 billion), Zhang said. This year, the government plans to double such loans to 2 billion yuan (US$322 million), he said.

The reforms have been trying to resolve the difficulty in obtaining loans by small and medium businesses, and the problem that many private funds have in finding appropriate investments, the report said. By promoting the creation of new lending services the city hopes to increase transparency and regulation.

After one year, the reforms have helped open four private loans service centers, six private asset management firms, which together helped finance 204 projects and raised funds worth 718 million yuan (US$116 million). The government also helped set up 26 small-sum financing companies, and opened nine agricultural funding associations.

The city has yet to approve the establishment of any new private banks, and the city’s goals will be difficult to achieve unless there are stronger support measures put in place by the government. Over the past six months private funds’ willingness to join the reforms have cooled down, the report said, citing an unidentified insider.

Wenzhou’s courts are currently in the processes of handling private debt collections exceeding 50 billion yuan (US$8 billion), while the total of private debt in the city has reached 100 billion yuan (US$16 billion), the report said.