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.
William Ide
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

UN Watchdog Urges Israel to Probe Possible Gaza War Crimes

More than 2,100 Palestinians, most of them civilians, were killed in a 51-day war in Gaza, along with 67 Israeli soldiers and six civilians in Israel More

New Kenyan 'Thin SIMs' Poised to Transform African Mobile Money

Equity's new technology is approved in African nation for one-year trial, though industry leader Safaricom says thin SIMs could lead to data theft and fraud More

Solar's Future Looks Brighter

New technology and dropping prices are contributing to a surge in solar power More

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.
Talks to Resume on Winter Gas for Ukrainei
X
Al Pessin
October 25, 2014 4:21 PM
Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Talks to Resume on Winter Gas for Ukraine

Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.

All About America

AppleAndroid