Tuesday, February 7, 2012

Dragged into the Swamps, Wenzhou Tries an Experiment in Regulated Loan Sharking

The solution to a run-away loan pool lending is regulated loan pool lending. Or, that's what Wenzhou is going to try.

Shadow banking is huge in Wenzhou. 90% of households are involved for a total estimated capital of $16 billion USD. This compares to total exports out of Wenzhou in the first ten months of 2010 of less than $12 billion. If we assume that pace continued, that'd be about $14.4 billion on the year (probably less, since Christmas orders are in that first ten months), which implies that the total shadow banking debt alone in Wenzhou exceeds the total exports on the year and exports are 95% of the total industrial revenue. Their total shadow debt to total industrial revenue is about one to one. Imagine what it would be with banking debt added in.

And this is China's golden child of manufacturing. Seriously.

Wenzhou calls for capital to come home
This city, a pioneer in the nation's private-sector economy, is about to embark on another experiment: a banking platform meant to ease the financial woes of thousands of companies that teetered on the edge bankruptcy last year.
The financing platform aims to have cash-rich local entrepreneurs set up microfinance agencies that would be regulated and supervised by the government, local officials said on Wednesday.
Wenzhou's economy is largely dependent on exports and private business. Among all companies in Wenzhou, 99.5 percent are privately run and exports account for 95 percent of the city's total industrial revenue.
However, faced with a tough export climate, increasing costs and difficulties in borrowing from banks, entrepreneurs have said that since mid-2011, the situation became even worse than during the 2008 global crisis.
Many people abandoned their manufacturing or export businesses and invested in underground lending for high returns.
However, Wenzhou's per capita GDP was $4,413 in 2010, ranking just 9th out of the 11 cities in Zhejiang province, one of the richest regions in China.

No comments: