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

Jihadist Assassin says Goal of Tunisia Murders Was Chaos

Abu Muqatil at-Tunusi’s remarks in a propaganda interview also cast light on attack on Bardo Museum More

Russia Denies License to Tatar-Language TV Station in Crimea

OSCE official says denial shows 'politically selective censorship of free and independent voices in Crimea is continuing' More

Kenyan Startups Tackle Expensive Remittances Through Bitcoin

Some think services could give Western Union a run for its money, though others say it’s still got a long way to go 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.
For Obama, It's More Business Than Friendships With World Leadersi
X
Aru Pande
April 01, 2015 9:09 PM
The rift between President Barack Obama and Israeli Prime Minister Benjamin Netanyahu has put a spotlight on the importance of the American leader’s personal relationships with other world leaders and what role such friendships play in foreign policy. VOA's Aru Pande reports.
Video

Video For Obama, It's More Business Than Friendships With World Leaders

The rift between President Barack Obama and Israeli Prime Minister Benjamin Netanyahu has put a spotlight on the importance of the American leader’s personal relationships with other world leaders and what role such friendships play in foreign policy. VOA's Aru Pande reports.
Video

Video Buhari: Nigeria Has ‘Embraced Democracy’

Nigeria woke up to a new president-elect Wednesday, Muhammadu Buhari. But people say democracy is the real winner as the country embarks on its first peaceful handover of power since the end of military rule in 1999. VOA’s Anne Look reports from Abuja.
Video

Video Tiny Camera Sees Inside Blood Vessels

Ahead of any surgical procedure, doctors try to learn as much as possible about the state of the organs they plan to operate on. A new camera developed in the Netherlands can now make that easier - giving surgeons an incredibly detailed look inside blood vessels, all the way to the patient’s heart. VOA’s George Putic has more.
Video

Video Latin American Groups Seek Fans at Texas Music Festival

Latin American music groups played all over Austin, Texas, during the recent South by Southwest festival, and some made fans out of locals as well as people from around the world who had come to hear music. Such exposure can boost such groups' image back home. VOA’s Greg Flakus reports.
Video

Video Stockton Community, Police, Work to Improve Relations

Relations are tense between minority communities and police departments around the United States following police shootings that have generated widely-publicized protests. VOA's Mike O’Sullivan reports from Stockton, California, where police and community groups are working toward solutions, with backing from Washington.
Video

Video Indiana Controversy Highlights Divergent Meanings of Religious Freedom

Indiana’s state government has triggered a nationwide controversy by approving a law that critics say is aimed at allowing discrimination against gays and lesbians. The controversy stems from divergent notions of religious freedom in America. VOA's Jerome Socolovsky reports.
Video

Video Report: State of Black America a 'Tale of Two Nations'

The National Urban League has described this year's "State of Black America" report as a "tale of two nations." The group's annual report, released earlier this month (March), found that under an equality index African Americans had only 72% parity compared to whites in areas such as education, economics, health, social justice and civic engagement. It’s a gap that educators and students at Brooklyn’s Medgar Evers College are looking to close. VOA's Daniela Schrier reports from the school.
Video

Video Film Tells Story of Musicians in Mali Threatened by Jihadists

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video Ebola Vaccine Trials Underway in West Africa

Ebola has claimed the lives of more than 10,000 people in West Africa. Since last summer, researchers have rushed to get anti-Ebola vaccines into clinical trials. While it's too early to say that any of the potential vaccines work, some scientists say they are seeing strong results from some of the studies. VOA's Carol Pearson reports.
Video

Video Philippines Wants Tourists Spending Money at New Casinos

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.
Video

Video Civilian Casualties Push Men to Join Rebels in Ukraine

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.

VOA Blogs

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More