IPFS News Link • China
IPFS News Link • China
Wenzhou entrepreneurs' ability to access nonbank credit may have been
one of the sources of the city's success, but it now threatens to bring
the local economy down. And given the extent to which local
entrepreneurs have invested throughout China, the shocks will likely be
felt nationwide. Shanghai Daily calls the Wenzhou meltdown "China's subprime crisis."
For a while, business was very good for the Kid. His fund grew to $15
million at its peak. Borrowers were paying back their debts quickly. In
one week in May, for instance, the Kid took in nearly $8 million in
repaid loans and interest. Many of the borrowers were small-scale real
estate developers who needed money to fund projects — but that's
precisely why the Kid and others like him face problems now. Continued
economic uncertainties and tighter mortgage policies have made property
buyers increasingly cautious, and real estate sales have slowed
dramatically. The people of Wenzhou "plowed their money into
high-interest loans," says Victor Shih, a political scientist at
Chicago's Northwestern University who studies China's
financial system. "That was unsustainable because the high-interest
loans went back into real estate projects. Eventually all of them will
go bust."