Wen urges banks to support small businesses in trouble
By Zha Minjie |
October 6, 2011, Thursday
|
Print Edition
Print Edition
PREMIER Wen Jiabao has called for stronger financial support for China's small businesses and better regulation of the private lending market.
"Small enterprises should be a priority of bank credit support and enjoy more tax preferences from the government," Wen said during a visit to Zhejiang Province, east China's economic hub, on Monday and Tuesday.
He told banks to lend more to small firms and tolerate high levels of bad debt, while demanding a crackdown on high-interest private lending, Xinhua news agency reported yesterday.
Wen, along with high-ranking financial officials, visited the province following revelations of a debt crisis in Zhejiang's Wenzhou City where a string of business owners were said to have fled after finding they were unable to pay back their loans.
Wen called for regulators to ensure banks lend more to small and medium-sized companies and also get a tighter grip on informal credit.
"Small and medium-sized businesses play an irreplaceable role in expanding employment and promoting growth," said Wen.
The government must "improve incentives to encourage all kinds of financial institutions to provide better financial services to small businesses," Wen said.
Private lending activities should be better guided and regulated to play a positive role, he said.
"Effective measures should be taken to contain the trend of usury, crack down on illegal fundraising and properly handle the problems of collateral and capital shortage to prevent risks from spreading and evolving to a regional scale," said Wen.
Small businesses, which create 80 percent of China's jobs and generate 60 percent of the country's industrial output, have long complained about difficulties in securing loans from banks, which prefer to lend to large companies.
Wen's demand that banks do more to help small businesses underscored the growing pains and the dilemma private business owners face.
In Wenzhou, one-fifth of the city's 360,000 small and medium-sized firms have stopped operating due to cash shortages, Xinhua said.
Private lending in Wenzhou, the cradle of China's private sector, has been booming since the country tightened monetary controls late last year to fight inflation.
Many cash-strapped firms have been unable to borrow from banks during a credit clampdown and some have turned to the underground lending market, which pools money from individuals and firms and lends it out at annual interest rates as high as 100 percent.
Such high rates, more than 15 times China's benchmark lending rates, have pushed some firms beyond the limit.
The private lending rates, set at between 6-10 percent a month, have driven some smaller property developers into bankruptcy and triggered a string of entrepreneurs to go into hiding to avoid repaying loans.
Wen said: "We must strengthen oversight of private lending, and lead it into the daylight so it can develop in a regulated way and play a positive role."
Outstanding private loans in Wenzhou rose to 110 billion yuan (US$17.2 billion) this year, up from 80 billion yuan last year, according to Chinese central bank estimates.
The fear of large-scale collapses and bankruptcy among small firms in Zhejiang spread after reports of runaway entrepreneurs, including some big company bosses, hit the headlines before the National Day holiday.
The Wenzhou banking regulatory commission has asked banks to lower their loan rates, reported the 21st Century Business Herald.
Meanwhile, private capital investment groups say they will set up funds amounting to hundreds of millions of yuan to help the businesses.
However, Zhejiang government officials estimate that more small business will be closed in the area because of tightening monetary policies, inflation and surging costs.
"Small enterprises should be a priority of bank credit support and enjoy more tax preferences from the government," Wen said during a visit to Zhejiang Province, east China's economic hub, on Monday and Tuesday.
He told banks to lend more to small firms and tolerate high levels of bad debt, while demanding a crackdown on high-interest private lending, Xinhua news agency reported yesterday.
Wen, along with high-ranking financial officials, visited the province following revelations of a debt crisis in Zhejiang's Wenzhou City where a string of business owners were said to have fled after finding they were unable to pay back their loans.
Wen called for regulators to ensure banks lend more to small and medium-sized companies and also get a tighter grip on informal credit.
"Small and medium-sized businesses play an irreplaceable role in expanding employment and promoting growth," said Wen.
The government must "improve incentives to encourage all kinds of financial institutions to provide better financial services to small businesses," Wen said.
Private lending activities should be better guided and regulated to play a positive role, he said.
"Effective measures should be taken to contain the trend of usury, crack down on illegal fundraising and properly handle the problems of collateral and capital shortage to prevent risks from spreading and evolving to a regional scale," said Wen.
Small businesses, which create 80 percent of China's jobs and generate 60 percent of the country's industrial output, have long complained about difficulties in securing loans from banks, which prefer to lend to large companies.
Wen's demand that banks do more to help small businesses underscored the growing pains and the dilemma private business owners face.
In Wenzhou, one-fifth of the city's 360,000 small and medium-sized firms have stopped operating due to cash shortages, Xinhua said.
Private lending in Wenzhou, the cradle of China's private sector, has been booming since the country tightened monetary controls late last year to fight inflation.
Many cash-strapped firms have been unable to borrow from banks during a credit clampdown and some have turned to the underground lending market, which pools money from individuals and firms and lends it out at annual interest rates as high as 100 percent.
Such high rates, more than 15 times China's benchmark lending rates, have pushed some firms beyond the limit.
The private lending rates, set at between 6-10 percent a month, have driven some smaller property developers into bankruptcy and triggered a string of entrepreneurs to go into hiding to avoid repaying loans.
Wen said: "We must strengthen oversight of private lending, and lead it into the daylight so it can develop in a regulated way and play a positive role."
Outstanding private loans in Wenzhou rose to 110 billion yuan (US$17.2 billion) this year, up from 80 billion yuan last year, according to Chinese central bank estimates.
The fear of large-scale collapses and bankruptcy among small firms in Zhejiang spread after reports of runaway entrepreneurs, including some big company bosses, hit the headlines before the National Day holiday.
The Wenzhou banking regulatory commission has asked banks to lower their loan rates, reported the 21st Century Business Herald.
Meanwhile, private capital investment groups say they will set up funds amounting to hundreds of millions of yuan to help the businesses.
However, Zhejiang government officials estimate that more small business will be closed in the area because of tightening monetary policies, inflation and surging costs.
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