China PM Wen Thought to Be Confronting East China Loan Crisis
Created: 2012-08-17 09:50 EST
Anything Chinese Premier Wen Jiabao does around this period of time is sure to be scrutinized. Late summer has traditionally been the time for secretive high-level meetings of Communist Party officials at the seaside resort town of Beidaihe. In this year of leadership change, the meetings are especially important.
That's why Wen's appearance in the eastern province of Zhejiang, after several weeks of keeping a low profile, is being read as meaningful by observers of China's politics and economy. In a sign of just what sort of meaning Wen hopes will be attached to his visit, he used it to announce publicly his "confidence" in China's continued economic growth... although he added that the economy isn't yet "stable," and that "economic difficulty may continue for a while."
According to both Chinese and Western analysts, Wen is likely seeking to send a message to Chinese banks and private lenders not to stop lending on account of the current increase of non-performing loans. Such loans, characterized by poor chances or conditions of profitable repayment, are especially common in some parts of Zhejiang Province, which has a relatively great number of small and medium-sized businesses, which need loans to survive and grow.
China's central banking authorities estimated that, at the end of June 2012, the balance of non-performing loans of China's commercial banks was 452.8 billion RMB, or $71.2 billion, an increase of $4.6 billion on last year. In the city of Wenzhou alone, the number for this year was the equivalent of $2.9 billion USD in non-performing loans, according to China's Caijing Magazine. The phenomenon is blamed on the failure of businesses which took out such loans—a negative sign of grassroots trouble in the overall economic conditions.
The business failures and unpaid loans have sparked another phenomenon: disappearing entrepreneurs. One report by Tencent Finance, estimated that around 40 businesspeople have fled from the region because of business failures and inability to pay their creditors. Some Chinese microbloggers have even spread a “Disappeared Wenzhou Entrepreneurs List”. If Zhejiang's entrepreneurs keep running away, even the arrival of the country's premier might not be enough to keep the money flowing.