“It’s because of the credit crisis,” said Ma Jianrui, who runs one of the used-car shops and has seen his business booming. “They need money quickly.”
Many economists fear that the crisis not only could devastate Wenzhou but also may be a portent of what China could be facing on a vastly larger scale: a massive amount of accumulated debt that could rival the subprime crisis in the United States that triggered a larger recession. Most is private debt amassed by small and medium-size companies, economists said, but a portion is personal household debt. Any precise figures are largely guesswork, they said.
Wenzhou’s debt crisis is complex but essentially boils down to this: The small and medium-size factories that drive the local economy found it increasingly hard to get bank loans this year as the government announced it was ending its stimulus spending and tightening the money supply to rein in inflation. The factories turned to the murky private lending market — small, licensed credit companies, unlicensed underwriters, bigger businesses with spare cash to lend, and loan sharks.
Some of the loans were to pay salaries and keep the factories humming. But much of the money went into more speculative ventures, such as investing in real estate or expanding into newer, riskier businesses with the lure of higher returns. And some individuals and businesses that could get scarce bank loans turned around and loaned the money out again, to friends and neighbors, at higher interest rates.
But the continued economic slowdown in the United States and Europe meant orders dried up for Wenzhou’s hundreds of thousands of small factories. Inflation has been increasing — currently about 6 percent in China — which is one reason the government decided to tighten liquidity. Wages have been rising. The Chinese currency, the renminbi, has been gradually gaining in value against the U.S. dollar, further hammering these export-dependent factories.
With the loans coming due, many cannot pay. Some 90 factories have gone out of business here, and in many cases the bosses simply fled town, said Zhou Dewen, chairman of the Wenzhou association representing small and medium-size businesses. The boss of a shoe manufacturing company, deep in debt, committed suicide by jumping off the roof of his factory.
Several of the small credit companies have closed, and the owners have disappeared. Among them are the Jin Qiao Credit Guarantee, which was locked and empty during a recent visit, and the Jin Hong Credit Guarantee, the two firms run by a mother and her daughter. The mother is said to have fled to Finland and the daughter to Brazil.
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