As the New Year approached on Jan. 31, all Chinese companies and banks were busy collecting debts and paying debts. China’s economy is facing a number of problems, including a money shortage and soaring local debt. According to experts this may trigger another wave of bankruptcies among private enterprises.
Nearly 98 percent of private companies in Wenzhou City, China’s eastern private enterprise hub, have “hubao,” or mutual guarantee, loans—a form of joint responsibility loan that lowers the bar for private companies to get money from banks or other financial institutions. However, when the money supply is tight, one sinking boat could pull down several others.
Chen Yixin, the Communist Party chief of Wenzhou City commented that “hubao” is a very difficult problem for the local economic development, and the performance of the local financial sector in December is a critical index.
“If the financial sector can endure, Wenzhou’s economy in 2014 will be stable; if problems come up, there will be a chain reaction,” said Chen.
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