Shanghai--The east China city of Wenzhou is battling its own subprime crisis after seven local business owners fled recently, leaving thousands of employees in a state of shock and enormous unpaid loans in hundreds of millions of yuan.
Most of the runaway bosses who have disappeared since September 12 are in the manufacturing industry, according to today's National Business Daily. Each of them had borrowed hundreds of millions of yuan from banks and private creditors.
Subprime lending in Wenzhou, the cradle of China's private economy, has been booming since the country tightened its money supply late last year to curb soaring inflation. State-owned banks are ordered to stick to a mandatory loan-to-deposit ratio and are reluctant to offer loans to small firms like those in Wenzhou over default risks.
The closed door to bank borrowing has forced some business owners to turn to private lenders, mostly illegal, despite the higher costs of their loans.
But when their business failed to perform as expected and it became obvious that the bankrupt business owners would not be able to pay their debts, some decided to flee.
Hu Fulin, whose Zhejiang Center Group was one of China's biggest eyeglasses maker, is one of the runaway bosses. He said he was unable to bankroll this company's operation any more, the newspaper said.
Hu ran a company with 3,000 employees in Wenzhou and used to be one of the city's high-profile gurus. His company owns the best-selling sunglass brand in China and produces 20 million pairs a year, according to the company's website.
Hu also expanded into the real estate and solar energy industries. Sources close to him said Hu called them on Wednesday morning, admitting he is now broke.
The news of Hu's disappearance triggered a panic among his suppliers who gathered in his factory demanding payments. National Business Daily said Hu also owed about 10 million yuan of salary to his employees for the months of August and September.
Wenzhou City government has set up a task team to Hu's company to resolve the debt issue.
Meanwhile, another Wenzhou business owner, Zheng Zhuju, has been held in police custody since September 13 on charges of illegal business operation.
Zheng allegedly owed 280 million yuan to private lenders and banks and tried to disappear from Wenzhou with tens of millions of yuan, according to the city police.
The 49-year-old woman is the founder of a Wenzhou home appliances chain store, selling products from Siemens, Sony, LG, Midea and Haier, the police said.