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.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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