News / Asia

    China’s City of Entrepreneurs Waits for Deeper Reforms

    China’s City of Entrepreneurs Waits for Deeper Reformsi
    X
    December 24, 2013 11:23 AM
    Businessmen and women from China’s eastern coastal city of Wenzhou have long had a reputation of being financial risk-takers in search of the next big business opportunity. But after the city was hit with an economic crisis two years ago as bad loans ballooned, the government began experimenting with financial reforms. VOA’s Bill Ide visited Wenzhou for a look at how the reforms are working.
    The Chinese entrepreneurial capital of Wenzhou is one of a few places in China where the country’s leaders are already experimenting with financial reforms.
     
    For more than a year, the government has paved the way for the opening of private banks and lending centers, but the reforms have so far seen only mixed results.
     
    Wenzhou ChinaWenzhou China
    x
    Wenzhou China
    Wenzhou China
    Economists and entrepreneurs say that for change to really take hold, deeper reforms are needed.
     
    Businessmen and women in Wenzhou have long had a reputation of being risk-takers, individuals constantly in search of the next big business opportunity, be it domestic or international.
     
    Be your own boss
     
    Entrepreneurs from the city have investments in countries around the world and across China. In this coastal port, known for its temperate climate, everyone wants to be his or her own boss.
     
    Wu Zhengzhou is opening a Chinese restaurant chain in the city and hopes it will take off here, just as it has in his hometown of Nanjing.
     
    “We chose Wenzhou because it is a wealthy city and there are lots and lots of people here,” Wu said. “The opportunities for business are big.”
     
    Wang Meifeng, a community party leader, has tapped into Wenzhou's shoe industry and sells boots online. She says that while some are satisfied with work that allows them to just have enough money to pay their basic expenses, people in Wenzhou are different.
     
    “We want to earn a lot of money and to do that we are willing to work a lot,” said Wang. “Wenzhou has lots of salespeople all around China who follow the demand for everyday products.”
     
    Credit crunch
     
    Wenzhou’s small and medium sized businesses have long thrived with the support of informal lending networks from families and friends. Residents are known for their keen sense of business opportunities, but that has also come with a reputation for grey-market lending.
     
    When credit began tightening up two years ago in the wake of the global financial crisis, the city’s entrepreneurial spirit was hit with a major blow. Some business leaders fled. Others leaped from high-rises in the city to their deaths.
     
    The real estate market started to tank and the cost of some properties along the Oujiang River dropped by as much as 40 percent at their lowest point, but now the building boom appears to be back.
     
    While entrepreneurs are still struggling under the weight of heavy debt, the city’s mayor says Wenzhou has about $100 billion available for investments.
     
    In many ways, Wenzhou is like a smaller version of China, says economist Hu Xingdou.
     
    "Wenzhou's development of a market economy came much earlier than in the rest of China, and because of that it also faced an early economic crisis,” Hu said.
     
    Shadow lending out of the shadows
     
    The government’s solution to Wenzhou’s problems was to allow for the establishment of private banks and smaller lending centers. The hope was that by loosening restrictions in a country where state banks dominate and limit small and medium size enterprises access to credit, it would bring shadow lending out of the shadows.
     
    A year into the reforms, the number of small loan companies has grown to about 40, but only several private banks have been established.
     
    “You can encourage private enterprises to set up banks but if the big stakeholders are still state-owned banks then people are not going to be that keen in setting up private banks,” said local entrepreneur and financial adviser Chen Shu.
     
    Local economist Ma Jinlong said the reason why there has been no breakthrough in enticing more private banks is because of the continuing dominance of state-backed enterprises.
     
    “In Wenzhou, the contradiction between state-run companies’ monopolistic status and the growth of private enterprises is even more severe than in other parts of the country,” said Ma. “So if we do not make a breakthrough in reforms what has happened in Wenzhou could happen in other places in China.”
     
    Risks and opportunities
     
    Currently, the majority of lending in China is done by big state-owned enterprises. Those funds typically go to large state-owned companies. China knows that it needs to reform this system.
     
    At a major meeting last month, the third plenum of the Communist Party, China’s leaders agreed to let the market have more sway in the economy. Over the past year, they have allowed the loosening of interest rates at banks and called for allowing private capital in banks.
     
    Even so, changing China’s long held practice of using loans from state owned banks to prop-up state firms and keep the economy going will not be easy.
     
    Small and medium sized enterprises in Wenzhou have long survived because the city is located in a province that has been a national leader in private capital.
     
    While it may be riskier to invest in small and medium sized enterprises there are opportunities there as well according to Eswar Prasad, an economist at Cornell University.
     
    “If it's done so that the informal banking system, or even the smaller banks in Wenzhou, can actually start making better profits by selectively lending to the small and medium size lenders, that could create some pressure on the formal banking system to start thinking of lending not just to the state owned enterprises,” said Prasad.
     
    Still, economists say that a major breakthrough is unlikely to come, even in business savvy Wenzhou, until the entire financial system changes and ends the dominance of state owned banks.

    You May Like

    Hope Remains for Rio Olympic Games, Despite Woes

    Facing a host of problems, Rio prepares for holding the games but experts say some risks, like Zika, may not be as grave as initially thought

    IS Use of Social Media to Recruit, Radicalize Still a Top Threat to US

    Despite military gains against IS in Iraq and Syria, their internet propaganda still commands an audience; US officials see 'the most complex challenge that the federal government and industry face'

    ‘Time Is Now’ to Save Africa’s Animals From Poachers, Activist Says

    During Zimbabwe visit, African Wildlife Foundation President Kaddu Sebunya says poaching hurts Africa as slave trade once did

    This forum has been closed.
    Comments
         
    There are no comments in this forum. Be first and add one

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Ivorian Chocolate Makers Promote Locally-made Chocolatei
    X
    July 29, 2016 4:02 PM
    Ivory Coast is the world's top producer of cocoa but hardly any of it is processed into chocolate there. Instead, the cocoa is sent abroad to chocolate makers in Europe and elsewhere. This is a general problem throughout Africa – massive exports of raw materials but few finished goods. As Emilie Iob reports from Abidjan, several Ivorian entrepreneurs are working to change that formula - 100 percent Ivorian chocolate bar at a time.
    Video

    Video Ivorian Chocolate Makers Promote Locally-made Chocolate

    Ivory Coast is the world's top producer of cocoa but hardly any of it is processed into chocolate there. Instead, the cocoa is sent abroad to chocolate makers in Europe and elsewhere. This is a general problem throughout Africa – massive exports of raw materials but few finished goods. As Emilie Iob reports from Abidjan, several Ivorian entrepreneurs are working to change that formula - 100 percent Ivorian chocolate bar at a time.
    Video

    Video Tesla Opens Battery-Producing Gigafactory

    Two years after starting to produce electric cars, U.S. car maker Tesla Motors has opened the first part of its huge battery manufacturing plant, which will eventually cover more than a square kilometer. Situated close to Reno, Nevada, the so-called Gigafactory will eventually produce more lithium-ion batteries than were made worldwide in 2013. VOA's George Putic reports.
    Video

    Video Polio-affected Afghan Student Fulfilling Her Dreams in America

    Afghanistan is one of only two countries in the world where children still get infected by polio. The other is Pakistan. Mahbooba Akhtarzada who is from Afghanistan, was disabled by polio, but has managed to overcome the obstacles caused by this crippling disease. VOA's Zheela Nasari caught up with Akhtarzada and brings us this report narrated by Bronwyn Benito.
    Video

    Video Hillary Clinton Promises to Build a 'Better Tomorrow'

    Democratic presidential candidate Hillary Clinton urged voters Thursday not to give in to the politics of fear. She vowed to unite the country and move it forward if elected in November. Clinton formally accepted the Democratic Party's nomination at its national convention in Philadelphia. VOA national correspondent Jim Malone has more.
    Video

    Video Trump Tones Down Praise for Russia

    Republican presidential candidate Donald Trump is toning down his compliments for Russia and Vladimir Putin as such rhetoric got him in trouble recently. After calling on Russia to find 30.000 missing emails from rival Hillary Clinton, Trump told reporters he doesn't know Putin and never called him a great leader, just one who's better than President Barack Obama. Putin has welcomed Trump's overtures, but, as Zlatica Hoke reports, ordinary Russians say they are not putting much faith in Trump.
    Video

    Video Uganda Unveils its First Solar-powered Bus

    A solar-powered bus described by its Ugandan makers as the first in Africa has made its public debut. Kiira Motors' electric bus, Kayoola, displayed recently at a stadium in Uganda's capital. From Kampala, Maurice Magorane filed this report narrated by Salem Solomon.
    Video

    Video Silicon Valley: More Than A Place, It's a Culture

    Silicon Valley is a technology powerhouse and a place that companies such as Google, Facebook and Apple call home. It is a region in northern California that stretches from San Francisco to San Jose. But, more than that, it's known for its startup culture. VOA's Elizabeth Lee went inside one company to find out what it's like to work in a startup.
    Video

    Video Immigrant Delegate Marvels at Democratic Process

    It’s been a bitter and divisive election season – but first time Indian-American delegate Dr. Shashi Gupta headed to the Democratic National Convention with a sense of hope. VOA’s Katherine Gypson followed this immigrant with the love of U.S. politics all the way to Philadelphia.
    Video

    Video Dutch Entrepreneurs Turn Rainwater Into Beer

    June has been recorded as one of the wettest months in more than a century in many parts of Europe. To a group of entrepreneurs in Amsterdam the rain came as a blessing, as they used the extra water to brew beer. Serginho Roosblad has more to the story.
    Video

    Video Commerce Thrives on US-Mexico Border

    At the Democratic Convention in Philadelphia this week, the party’s presumptive presidential nominee, Hillary Clinton, is expected to attack proposals made by her opponent, Republican presidential nominee Donald Trump, to build a wall along the U.S.-Mexico border. Last Friday, President Barack Obama hosted his Mexican counterpart, President Enrique Peña Nieto, to underscore the good relations between the two countries. VOA’s Greg Flakus reports from Tucson.
    Video

    Video Film Helps Save Ethiopian Children Thought to be Cursed

    'Omo Child' looks at effort of African man to stop killings of ‘mingi’ children
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.

    Special Report

    Adrift The Invisible African Diaspora