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

Video On the Scene: In Gaza, Darkness Brings Dread and Death

Palestinians fear nighttime raids, many feel abandoned by outside world, VOA's Scott Bobb reports More

African Small Farmers Could Be Key to Ending Food Insecurity

Experts say providing access to microloans, crop insurance, better storage facilities, irrigation, road systems and market information could enable greater production More

University of Michigan Wins Solar Car Race

Squad guided its student-designed solar-powered vehicle to fifth consecutive time victory in eight-day bi-annual American Solar Challenge 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.
Vietnamese Staging Chinese Product Boycott After Oil Rig Spati
X
Reasey Poch
July 28, 2014 7:18 PM
China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video Vietnamese Staging Chinese Product Boycott After Oil Rig Spat

China recently pulled an oil rig from an area of the disputed South China Sea that Vietnam also claims. Despite the action, the incident has had a lingering effect on consumers in Vietnam. VOA's Reasey Poch reports from Hanoi on an effort to boycott Chinese products.
Video

Video ESA Spacecraft to Land on a Comet

After a long flight through deep space, a European Space Agency probe is finally approaching its target -- a comet millions of kilometers away from earth. Scientists say the mission may lead to some startling discoveries about the origins of the water on earth. VOA’s George Putic has more.
Video

Video Young Africans Arrive in US for Leadership Program

President Barack Obama's Young African Leadership Initiative has brought hundreds of young Africans to the United States for a six-week program aimed at building their knowledge and skills in fields such as public administration and business. Out of the 50,000 young Africans who applied for the program, just one percent was accepted. VOA's Laurel Bowman caught up with some of those who made the cut and has this report.
Video

Video In Honduras, Amnesty Rumors Fuel US Migration Surges

False rumors in Central America are fueling the current surge of undocumented young people being apprehended at the U.S. border. The inaccurate claims suggest the U.S. will give amnesty to young migrants from the region. As VOA's Brian Padden reports from Honduras, these rumors trace back to President Obama's 2012 executive order to halt deportations for some young undocumented immigrants already living in the United States.
Video

Video Students in Business for Themselves

They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.

AppleAndroid