- Development & Aid
- Economy & Trade
- Human Rights
- Global Governance
- Civil Society
Monday, September 21, 2020
SHANGHAI, Nov 19 2011 (IPS) - Europe has its Greece moment and China has its Wenzhou crisis. When European leaders were calling on China to step in and provide a lifeline to the eurozone by investing in its bailout programme, voices inside China were saying Beijing should save Wenzhou and forget about Europe.
Though small in the big China canvas, the city of Wenzhou could have the same effect on its economy, some alleged, as Greece has had on the eurozone.
But unlike the Greece fallout, the Wenzhou crisis may still turn out to be a blessing in disguise for China, argue others. As the birthplace of private enterprise in communist China, Wenzhou – often reviled and broadly admired for its devil-may-care businessmen – could now become a trigger for genuine banking reform that will transform China.
“Give Wenzhou a chance, let it rely on what it understands best – the way market works, and then we will have a case when not China saves Wenzhou but Wenzhou saves China,” Wang Wei, secretary of the China Private Equity Investment Association, wrote in the China Times.
A city in the Yangtze River delta some 350 km from Shanghai, Wenzhou has for years been synonymous with self-made wealth. As a former treaty port from where many Chinese went abroad in search of work, Wenzhou has entrepreneurial roots dating back centuries.
Despite recurrent campaigns against capitalists in the communist era that lasted until the mid-1990s, Wenzhou prospered as family businesses set up factories in the 1980s making shoes, garments, buttons and plastic toys. Excluded from the stock markets and ignored by state banks, those businesses opened up clandestine private banks and lent money to each other or borrowed from relatives abroad.
He first borrowed at 2 percent but says interest rates have gone up in recent years while orders have decreased. “Now it is more like 7 or 8 percent and more even if you know the lenders,” he says. “I’m still okay because my stuff is quite specialised but others who made lighters or buttons are now losing to factories in Cambodia and Vietnam, and are squeezed to pay back their debts.”
Shanghai is the playground for those Wenzhou businessmen that became really rich. Here they flaunt their wealth driving fancy cars, sipping champagne on the rooftop lounge of Roosevelt House on the historic Bund and indulge in brand shopping in the arcades below.
“The Shanghai property market was inflated by them,” says taxi driver Liu as he speeds along the city’s elevated roads where the vistas rival the celebrated skyline of Hong Kong. “People like me cannot afford to buy a place here because Wenzhou traders speculated in Shanghai property.”
This however was true before stories of runaway Wenzhou bosses, bankrupt companies and even suicides started coming from the city. Since summer Wenzhou has made headlines with some notorious cases of loan-sharking, prompting Premier Wen Jiabao to pay a visit in October and urge banks to lend more credit support to family and small businesses.
As the European economic crisis is beginning to bite and small companies are struggling with higher wages and the appreciation of the Chinese yuan, some companies have indeed run aground. Economists have begun talking about the Wenzhou crisis as the tip of the iceberg of a widespread shadow financing system that could imperil the real economy.
Zhang Qi, researcher with the Shanghai New Finance Research Institute disagrees. He says the Wenzhou crisis is a reflection of the relentless attack of state businesses on private capital, or what is known as ‘Guo jin Min tui’ in Chinese, and the way the business and financial environment for the private sector has deteriorated.
“What these Wenzhou companies need is not for the state to rescue them,” Zhang says. “They need for private lending to be legalised so that they can be financially independent and cope with the changes in the global economy.”
Last week Beijing signalled that it may be finally relaxing its control on funding for the private sector, and is considering legalising private lending in some of the forms that has taken root in Wenzhou’s private banks.
A central bank official told the Xinhua news agency that Beijing is exploring ways to support small and medium private companies by legalising private lending at rates that do not exceed four times those of bank loans.
“This is real progress after many years of Beijing trying to squash underground banks and eliminate private lenders,” says Zhu Dake, researcher at Shanghai Tongji University. “It is also perhaps a sign that the demands of the interest groups representing China’s private capital are becoming more difficult to ignore by the communist party.”
IPS is an international communication institution with a global news agency at its core,
raising the voices of the South
and civil society on issues of development, globalisation, human rights and the environment
Copyright © 2020 IPS-Inter Press Service. All rights reserved. - Terms & Conditions
You have the Power to Make a Difference
Would you consider a $20.00 contribution today that will help to keep the IPS news wire active? Your contribution will make a huge difference.