Small And Medium-Sized Shoe Enterprises Financing To Reproduce The "Domino Dominoes" Effect

Investment

The general manager of the company and the financial statements of a large number of client enterprises give him a more direct understanding of the crisis.

Hu Fulin, chairman of self confidence Thai group, fled the United States after the gold chain problem, and more and more small and medium-sized shoe enterprises in Wenzhou went bankrupt. The rupture of the most active city in private finance has become the focus in a moment, and it has also triggered further worries about the risk of domestic private lending and the survival crisis of SMEs.

From the "eight kings incident" in the 80s of last century to the overseas "shoe burning incident" in 2004, and then to the "three meeting" of private lending crisis, in the course of the development of China's private economy, Wenzhou does not lack the topic of concern.

Is it accidental or inevitable?

A number of respondents, including Chen Xingping, President of the Wenzhou chamber of Commerce in Shenzhen, believe that, with the tightness of the national monetary policy, the slack up of enterprises after the expansion of investment, the lack of government policies and regulations relative to the market development needs, the credit difficulties of small and medium-sized enterprises, the decline of the real economy, and the following factors such as centralized investment and so on, the Wenzhou with small and medium enterprises concentration and abundant private capital has the inevitability of breaking the crisis of private lending.

Domino dominoes

"It's all factory buildings," the taxi driver pointed out at the window.

On the road from Yongqiang Airport to urban area, the "empty shell" workshop can be seen everywhere.

By October, there could be statistical anecdotal news that nearly 100 business owners had run away because of the broken capital chain.

And this is just the tip of the iceberg. Similar situations are staged among more SMEs in Wenzhou.

In the first half of 2009 and the first half of 2010, the state adopted extremely loose monetary and fiscal policies.

"Because of the logical deduction between loose money and inflation, many enterprises increased their liabilities investment at that time."

In Wenzhou, a solar energy enterprise marketing strategy Department told reporters that due to photovoltaic

But then the tightening of the currency, the increase of interest rates and the adjustment of the deposit reserve ratio have already made the banks close to the middle and small businesses. The private lending, which was originally only a supplementary function, has become the only way for the financing of the small and medium-sized enterprises.

"Before the expansion of small and medium-sized enterprises have been riding a tiger, capital shortage, we can only drink poison to quench thirst, borrow money or borrow money at high interest."

Xu Sheng said.

Xu Sheng believes that the sudden loosening of monetary policy makes it difficult for the market to make accurate and rational expectations, while the small profit manufacturing industry is hard to sustain at the moment of rising raw material and labor costs.

"Basically, they are all manufacturing enterprises."

Earlier, it was reported that Hu Fulin, chairman of Xintai group, fled the US due to the gold chain problem.

"The collapse of the Xintai group is closely related to its entry into the solar photovoltaic real estate project, and the photovoltaic industry, especially the solar project, has been precipitated by the early funds, and close to 80% of the enterprises are involved in private lending."

The PV industry told reporters.

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He also revealed that Hu Fulin was originally rich in capital, but since the first quarter of this year, the main selling market policy of photovoltaic power has changed. Germany, Italy and Spain have cut down the import of photovoltaic solar products from China, resulting in the breakup of Xintai group's capital chain.

The photovoltaic industry also said that since the two quarter, many small and medium enterprises in photovoltaic industry have been discontinued or disappeared.

"If the situation continues, it is estimated that 20% of the industry will fail."

In the face of the survival predicament faced by small and medium-sized enterprises, Zhou Dewen, President of Wenzhou SME Development Association, even said that if the external environment is not improved, 40% of Wenzhou's small and medium-sized enterprises will stop production or even go bankrupt.

Chen Xingping believes that in addition to the reasons for monetary tightening, it is also related to the disconnection and lag of local governments in the supervision and matching of financial services.

"Compared to the development of private finance in Wenzhou, the government and the existing financial system appear bureaucratic and not open. This is neither in line with market demand nor in demand for capital turnover."

Chen Xingping said.

Where do all these money come from?

Among those surveyed by the Wenzhou branch of the people's Bank of China, 89% of households or individuals and 59.67% of the enterprises were involved in private lending.

The main source of loans is the idle funds of private entrepreneurs and ordinary families, including funds for local production and living balances in Wenzhou, investment refunds of Wenzhou people from all over the country, and remittance funds of overseas Chinese in Wenzhou around the world.

In addition, a small amount of bank credit funds will not be inflow indirectly.

Moreover, driven by the profit driven by capital, the current participants and the circulation of loans need to be more chain and diversified.

In Xu Sheng's view, since the beginning of this year, the "brutal growth" of private lending has covered all kinds of enterprises including individuals, Guarantee Corporation, pawn shops, small loan companies, intermediary companies and so on.

Many companies with security and pawn brands are actually doing high risk investments.

This has become a city of borrowing.

"If you want to know how long the chain of private lending in Wenzhou is, it depends on which chain you want to move up, and it depends on how long you want to run."

Xu Sheng said.

It is understood that many local Guarantee Corporation and intermediary companies in Wenzhou do not guarantee, but in the monthly interest of 2~3 points in the form of customer financing in disguise, and then high interest rate lending out.

"In addition to collecting loans for financial services, some small loan companies or investment companies also come from the bank's financial products and other off balance sheet funds.

The loan or entrusted loan between individuals or enterprises is also estimated to come from low cost bank credit.

These credit funds that flow into the private lending market are likely to come from interbank lending funds.

Xu Sheng analysis.

In the face of tight money and rising demand for corporate capital, interest rates on private lending in Wenzhou are also rising.

The report of the people's Bank of China shows that the average annual interest rate of private lending in Wenzhou is 24.4%, which is equivalent to a monthly interest rate of more than 2 points, up 3.4 percentage points over the same period last year.

Among them, the interest rate of social financing intermediaries is about 38%, and the interest rate of small loan companies is about 20%, which is no more than 4 times of the benchmark interest rate of banks.

But the head of a small loan company in Ordos told reporters that the interest rate of many small loan companies has already broken through the red line which does not exceed 4 times the benchmark interest rate.

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Where is the money?

The report of the people's Bank of China shows that the scale of private lending in Wenzhou is 110 billion yuan, of which only 35%, that is, 38 billion yuan of funds, has entered the general production and operation of the real economy, compared with the proportion of 90% in 2004.

The remaining 65% of the funds went to real estate investment, fund-raising real estate, or pferred between informal financial institutions.

One side is the hollowing of the real economy, the other is the crazy fast money game, such as speculation, speculation and so on. The crowding out effect of the private high interest loans that the market is worried about on the real economy investment has emerged.

The crowding out effect is divided into two categories.

One is Xu Sheng's insisting on passive extrusion.

It believes that although there is speculation in Wenzhou, stir fry, stir fry garlic, stir fry pepper and other capital, it is not the mainstream of corporate financing purposes.

On the other hand, in the view of the photovoltaic industry, it is the active reduction of lending capital to low profit manufacturing industries such as leather shoes, clothing, glasses and household appliances.

"The profit margins of manufacturing industry are very low, and the cost of labor and raw materials is rising this year, so it is almost impossible to afford the expensive usury funds."

Chen Xingping also believes that high return real estate and other investment areas are more attractive to private capital.

He said that Wenzhou people hold together and like to invest centrally. It is estimated that nearly 7 of the scale of private lending will directly or indirectly enter the real estate sector.

"I know that 3 companies have allocated funds to jointly set up a real estate company, but now they encounter real estate regulation. These 3 companies are short of money and badly needed."

Chen Xingping revealed.

"The capital occupation and circulation cycle caused by real estate regulation also lengthen the outbreak of the" debt crisis ".

The photovoltaic industry said.

Response and reflection

In response to the nationwide "debt crisis", the Wenzhou municipal government quickly responded to the bailout and sent 25 working groups to the bank to help banks do well in the combination of banks and enterprises, so as to prevent a series of bankruptcies caused by the withdrawal of credit funds.

On October 3rd, Premier Wen Jiabao of the State Council went to Wenzhou with the Ministry of Finance and central bank officials, and proposed to support small and medium-sized enterprises.

Wang Tao, chief economist at UBS Securities, believes that the worst case of panic and hypothetical "private lending" may be over with the coordinated efforts of the Wenzhou municipal government and the central authorities.

Agricultural Bank Strategy Department also told reporters that from the Ministry of finance's support policies for small and micro enterprises, the central bank reiterated the focus of anti inflation statement, indicating that the leadership has begun to attach importance to the financing difficulties of SMEs.

"From the perspective of market economy, profit driven private capital and the financing needs of small and medium-sized enterprises are understandable, but the situation has developed to the present, which is related to the stability of the monetary policy of the country, the form of domestic financial organizations, the establishment of private financial paction market, the lagging of supervision relative to market demand, the follower of private capital's investment in the trend of investment and the lack of assurance of investors' own assets and liabilities structure."

An analyst who declined to be named said.

Analysis of the weight of each factor, Chen Xingping believes that the policy and the financial system is not open and relatively lagging behind the supervision of 50% of the responsibility; private lending too concentrated investment in real estate, real estate regulation and control account for 30% of the responsibility; Wenzhou private lending itself in the asset structure ratio and lack of professional investment personnel defects, accounting for 20% of the responsibility.

In the second years after the "eight kings incident", the state cracked down on speculation and began to encourage private investment. After the shoe burning incident, it also triggered a reflection on the quality of China's manufacturing industry. This time, the crisis of private lending in Wenzhou is hoped to be an inflection point for improving the survival environment of SMEs, opening up the financial sector to private capital, and matching financial organizations with market demand.

Xu Sheng said.

He said that civil appeals have always been there, but regulators have been worried about the appeal to the public sector of the financial sector.

"The positive role of private lending in the development of the market can not be ignored. We should not choke our heads off." the key lies in how to dredge and supervise them so as to make them sunny.

Shenyin Wanguo analyst Dong Liang said.