Official: East China's Zhejiang resilient to debt crisis

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A top provincial official has said the recent debt crisis in Zhejiang that has resulted in the bankruptcy of a number of private enterprises, would not affect the province's business environment or its overall economic growth.

Zhao Hongzhu, chief of the Zhejiang provincial committee of the Communist Party of China, told Xinhua ahead of a business forum on Tuesday in the provincial capital Hangzhou that the output of the province's manufacturing sector grew 21.9 percent in the first nine months, with profit growth reaching 33.5 percent from a year earlier.

"Overall, small and medium-sized enterprises (SMEs) in the province remain healthy. There was no sharp increase in business closures," said the official, adding that 91,601 new businesses were registered in Zhejiang from January to September this year, up 12.3 percent from the same period last year.

Coastal Zhejiang has been known for its shrewd businessmen through the ages. Private enterprises took off in the 1980s when China started market economic reforms. The region has become prosperous and today the private economy has become a pillar of the local economy, accounting for about 70 percent of the gross domestic product and sustaining 90 percent of the jobs.

Since April this year, the city of Wenzhou has been hit by a severe debt crisis. More than 90 bosses of private companies in the city were reported to have disappeared, committed suicide or declared bankruptcy -- invalidating debts of about 10 billion yuan owed to banks and individual creditors pooled from the informal lending market.

Businessmen said they rapidly expanded businesses during the credit binge created to stimulate economy during the 2008-2009 global financial crisis but found themselves unable to repay bank loans and subsequently high-interest informal loans this year when banks were ordered to tighten lending to curb inflation.

Observers have worried that the debt crisis could escalate as informal loans are popular among SMEs across Zhejiang and in neighboring provinces.

Zhao said the debt crisis has complicated causes but is primarily a result of poor management, excessive business expansion, misjudged investment, and over-reliance on informal lending.

"It is not just Wenzhou. The credit crunch is being felt by most SMEs across the region and this only underlines the huge difficulties for small firms to get loans from banks," Wang Licheng, chairman of the board of Hangzhou-based Holley Group, told Xinhua on the sidelines of the World Zhejiang Entrepreneur Convention.

But Wang, one of Zhejiang's most successful businessman, said he did not think the situation is so serious to damage the province's business environment as the government has stepped in to intervene.

The State Council has cut taxes and ordered state-owned banks to ease the credit squeeze to salvage cash-strapped SMEs in Wenzhou after Premier Wen Jiabao's tour of the city on Oct. 5.

Zhao said the effects of these policies are beginning to show with some "runaway bosses" having returned with new-found confidence.

One prominent returned boss is Hu Fulin, president of the Xintai Group, China's largest eyeglasses manufacturer. He fled to the United States to escape a 1.5-billion-yuan debt in September but returned after banks agreed to relax repayment terms.

Wang, the businessman, said the government should further intervene by setting up a policy bank -- SME Development Bank for example -- to provide favorable loans to help China's private SMEs grow into competitive firms.

Zhao said the next step for the provincial authorities is to focus on regulating the informal lending market to prevent such a debt crisis from recurring.

Zhao said the authorities will strengthen supervision over informal loans to ensure they mostly go to small companies and individuals who need short-term funds in the initial business phase. He also said authorities would crack down on illegal fund raising and financing that threatens financial stability.