Snowstorms And Small Businesses Struggling In The Credit Crunch

At this snowy year, many small business owners are still rushing for capital.

"This year, the bank has applied two times to the bank to apply for a loan. It has not come down. The new year is coming, and the staff's new year's fee is not yet complete."

Zhejiang Wenzhou a shoemaking plant financial director said.

Since October 2007, dozens of shoe factories have closed down.

This is a typical industry in Wenzhou affected by the credit crunch and a microcosm of struggling small businesses.

In January 2008, the central bank set a tight monetary policy in the 2008 annual working conference.

The credit increments determined by commercial banks in 2008 were all over 2007, and most of them had been allocated to branches in the quarter and by region.

However, the credit demand in the real economy has not cooled down because of tight credit in the banking system.

On the contrary, small and medium-sized enterprises in the environment of rapid economic growth, in order to obtain living space and competitive advantage, urgently need funds to maintain production and operation and scale expansion.

The Construction Bank of Wenzhou branch said that the credit crunch in Wenzhou was earlier than the central bank's tightening policy. "In the first half of 2007, the quota was put to the end. In the middle of the year, the government had to limit the government's credit loans. In fact, it should have entered a passive credit crunch ahead of schedule."

What he calls passive credit crunch is also true in other commercial banks in Wenzhou.

According to people familiar with the matter, in 2007 and August of 2007, commercial banks in Wenzhou stopped lending real estate mortgage loans one by one, mainly due to the exhaustion of bank credit lines.

People from Wenzhou branch of Bank of China said that the number of credit lines allocated to each business line was not large after this year's credit index, and that the backlog of business at the end of 2007 and the first customer relationship maintained in the 2008 were very few.

"Individual business lines in January 1st released the quota of the whole year, only the smallest risk, the best business customers get the quota, more small businesses can only find another way to live", these people said, when the credit line is not enough.

Wenzhou is a region where private economy and small business clusters are developed. Private finance is active.

Because a large number of small and medium-sized enterprises have short development time and weak business stability, the sources of capital for production and operation mainly rely on two channels: bank credit and private financing.

From the monitoring data of the interest rate of private lending in Wenzhou branch of the people's Bank of China, the monthly interest rate of private lending in the region has been rising since April 2007, and it has soared to 11.096% in December 2007.

The conversion to the annual interest rate of 13.3% is equivalent to 1.8 times of the 5 year benchmark enterprise loan benchmark interest rate over the same period.

Insiders say this is a conservative official data, which is much more serious than it is.

People's Bank of China analysts said that the rapid rise of private lending rates for two reasons.

First, the tightening of bank credit leads to short leg financing, and no other available financing channels can be used as a supplement to private financing. The two is that capital market has entered a continuous concussion at the end of 2007, and many private capital has been caught and unwilling to withdraw.

"The imbalance between supply and demand has led to higher interest rates," he said.

However, the chain reaction of the credit crunch seems to have just begun.

In the second half of 2007, private lending rates in Wenzhou continued to rise.

Subsequently, a number of Guarantee corporation are facing bankruptcy because of excessive guarantee and being refused to repay by Guarantee Corporation.