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Private firms in Zhejiang face new round of funding woes

By Yang Jingjie (Global Times)

08:23, July 18, 2012

Private businesses in East China's Zhejiang Province are facing a new round of credit crunch, with hundreds of private enterprises jointly appealing for help from local authorities, 21st Century Business Herald reported Tuesday.

The paper quoted an anonymous official from the province's financial affairs office as saying that the office had received a letter signed by 600 private companies in Hangzhou, without revealing further details about the letter.

According to the report, industry leaders and some of the country's top 500 private enterprises are among those who appealed for help.

The crisis was triggered by the requirement of loan guarantee by private enterprises in order to secure bank loans.

Nonperforming loans of some enterprises have caused an alarm among the banks, which have started urging borrowers to first repay their loans before granting new loans.

The credit crunch has adversely affected the entire private sector in Zhejiang.

According to a report by the Hangzhou Furniture Association, the crisis began with one company defaulting on its loans, which was followed by defaults by some 100 other enterprises, leading to accumulated debts of 10 billion yuan ($1.6 billion).

Chen Huicong, chairman of Wenzhou Longji Technology Co, told the Global Times that the problem has been simmering for a while, given the widespread practice of private enterprises being each other's guarantor.

Chen said a large number of private businesses in Zhejiang are in a sluggish condition, and he expects about 20 to 30 percent of them to go bankrupt this year.

In 2011, a large number of enterprises went bankrupt and nearly 100 Wenzhou tycoons reportedly fled the city to avoid repaying their debts.

In the letter, the enterprises urged the government to establish a coordinating group to deal with the crisis.

They asked the authorities to persuade banks to temporarily stop loan repayment collection and give enterprises time by lending back the amount repaid to the banks in recent months. They also asked banks not to cut their loan credits in the next three years.

However, Chen noted that the government couldn't do much to help them, given the growing risks of nonperforming loans for banks.

"As a result, enterprises would be reluctant to repay their loans for fear of difficulties to get new loans," said Chen. "They would rather be blacklisted by banks than have an immediate funding shortage."

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