This goes along with this article on the neglected (Small and Medium-sized Enterprise) SME sector.
Money Crunch in China Forces Wave of Small Business Failures
Wenzhou City, a coastal manufacturing hub in China’s southeastern Zhejiang province, can serve as a benchmark for private enterprises in China. By early July, nearly 20 percent of SMEs in Wenzhou had shut down due to disruptions in the capital chain, the Yangtse Evening Post reported.
The business environment for SMEs is even worse now than it was during the 2008 global financial crisis, according to the latest survey by the All-China Federation of Industry and Commerce (ACFIC), which covered 16 provinces, including Guangdong, Zhejiang, and Jiangsu.
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Due to the national macro-control policy, bank loans are biased towards large state-owned enterprises and national key projects. It is very hard for SMEs to obtain bank loans.
Also apropos is this article about the health of loans issued in the black market.
Bad Loans Surge In Chinese Underground Banking System
. . . interest rates they are charging can be as high as 8% per month (i.e. almost 100% per annum), it is hard to see how these businesses can be alive. With rising exchange rate of Chinese Yuan, surging labour and material costs, now these businesses are facing surging financing costs. It would be surprising if none of these businesses fail.
And better yet, companies getting turned away as too risky.
China’s Loan Sharks Turning Away Small Firms
Despite the added costs and risks, business owners told the Hong Kong daily they were turning to loan sharks out of desperation to prop up sagging cash flows – only to be rejected, they said.
“They are now aware of the default risks and reluctant to lend to struggling businesses,” one Ningbo-based businessman said.
More than 7,000 companies have been forced to close in Zhejiang this year, the result of slumping sales, inflation and rising interest rates, according to the People’s Daily, Beijing’s flagship newspaper.