Wenzhou Export Hub Suffers from Capital Squeeze
Entrepreneurs in export-driven Wenzhou in Zhejiang province are scrambling to liquidate overseas investments to keep their small- and medium-sized businesses going amid a government-mandated capital squeeze.
The Hong Kong stock market and real estate market are being severely impacted by the withdrawl of capital by Wenzhou investors. Now that many businesses in the city are on the verge of closure, the government is barring their owners from fleeing creditors. The owner of the city’s biggest eyewear chain was caught in the U.S. and returned to Wenzhou to face his debts.
Because of its hyper-energetic entrepreneurs and business climate Wenzhou, a prefecture-level metro area of about 9 million, is often seen as a bellwether of China’s economy. If so, the nation may soon face a “usurious loan crisis” as businesspeople scramble to fund operations that are being starved of capital by this year’s tightening policies.
Some Wenzhou entrepreneurs have turned to so-called guarantee companies who take in money from savers and lend it out at interest rates of 10 percent a month and 240 percent a year. Exporters who need money to complete orders but are being paid late by their overseas customers have no choice but to pay those rates or shutter their businesses. During the second quarter, about 89 percent of individuals and nearly 57 percent of enterprises participated in such non-bank personal lending deals, according to a survey by the Wenzhou branch of the People’s Bank of China.
This climate is a sharp reversal from the recent past when the local government provided support for Wenzhou businesses investing in overseas sales. Last year Wenzhou backed a private capital investment service center with registered capital of 18 billion yuan ($2.8 billion). Many local entrepreneurs had little gtrouble borrowing large sums of money from banks for speculative investments in Hong Kong instead of substantive investments in operations at home. The excess capital was invested in the Hong Kong stock and housing markets
At least 5% of the 2,000 members of one Wenzhou business association had Hong Kong resident permits. They had been pouring money into buying luxury housing in Hong Kong since 2009, especially new projects in Kowloon.
The recent capital crisis is forcing them to pull out of Hong Kong’s housing market. The chairman of a Hong Kong-based mutual fund said new housing projects launched in West Kowloon are finding little interest now that Wenzhou speculators have left the market.
Visits to Hong Kong have tapered off this summer, according to Luo Shialan, a Wenzhou tour organizer for those looking to invest in Hong Kong real estate. The number of potential Chinese home buyers dropped by 40%-50% since China’s National Day holiday began on Oct. 1, with buyers from Wenzhou falling by 50%, said one real estate broker.
As Wenzhou investors continue to withdraw capital from Hong Kong, even major stocks on the Hong Kong bourse may see share prices threatened, according to one stock broker.