The ongoing credit curbs actually made banks even more reluctant to lend to SMEs, whose deposits are smaller than large companies, the official China Securities Journal said.
Without the freedom to charge higher interest on riskier loans, China's banking sector, dominated by the "Big Four" state banks, mainly lend to other large state-controlled enterprises and shun small- and medium-sized enterprises (SMEs).
Wang got an order in February and needed 500,000 yuan ($77,000) in working capital to buy materials. He waited in vain for two weeks for a reply to his bank loan application. Time was running out.
"Then a friend told me about pawn shops. It turned out to be cost-efficient. It would have been a pity had I lost the order," said Wang, who quickly repaid the two-month loan, using an apartment as collateral.
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Despite higher fees and interest than what banks charge, sources of private financing such as pawn shop loans, inter-business lending and loan sharks are often more accessible, realistic solutions for small business owners.
Credit crunch, high prices hit SMEs
This factory once was used by "Sooq", a famous electric cable company in China.
But rapidly evaporating capital and more than 120 million yuan in debt has pushed the company into bankruptcy.
Unlike Sooq, many factories in the city are seemingly operating as usual. But as a matter of fact, they are scrambling with shrinking profit margin and capital shortages.
A shortage of capital has brought opportunities for some businesses, though: in particular, the private banking sector. Industry insiders say more than a third of the capital in Wenzhou are invested in the financial investment sector. But experts say a resurgence of the loan sharks, who charge exorbitantly high interest rates, is bad news for local businesses.