In wealthy Chinese city, debt guarantees spark default contagion


Workers look at a ladle pouring molten iron into a container at a steel plant in Hangzhou, Zhejiang province in this May 30, 2012 file photo.  Credit: REUTERS/Lang Lang/Files

Workers look at a ladle pouring molten iron into a container at a steel plant in Hangzhou, Zhejiang province in this May 30, 2012 file photo.
Credit: REUTERS/Lang Lang/Files

A network of loan guarantees set up to improve companies’ access to credit in one of China’s richest districts is creating new risks of default as some debts sour, another sign of how private firms are bearing the brunt of an economic slowdown.

Chinese media have reported on a credit crunch developing among steel and textile manufacturers in Hangzhou city, 175 km (110 miles) south of Shanghai in Zhejiang province, as the failure of some to repay loans pushes their burden onto healthier firms.

Hangzhou is part of the Yangtze River Delta (YRD), an engine of growth during China’s boom years but now the source of a third of non-performing loans in the country.

The government ranks the city’s Xiaoshan district as China’s seventh wealthiest. One of the main drivers of its prosperity — small, private firms — is now a handicap.

“The textile industry is not a big borrower in the banking sector. The problems that we see arise when mutual guarantees go bad and textile firms are dragged in,” said Robert Yang, assistant to the president at the China National Textile & Apparel Council.

Concern about the huge growth in Chinese corporate debt since the global financial crisis has intensified this year as the government allows market forces to play a bigger role in deciding winners and losers.

Private firms often struggle to obtain credit from state-owned banks, which prefer to lend to state-owned firms due to their government backing.

That trend has worsened as economic growth slows, credit conditions tighten, and authorities work to reduce excessive investment and overcapacity in some sectors.

Steel and textile manufacturers in Xiaoshan, like other private firms around the YRD, sought to overcome such obstacles by providing loan guarantees for each other to gain bank credit.

Now defaults by a few companies threaten a chain reaction that could ensnare even profitable firms, as the guarantees have left them on the hook for debts of their bankrupt competitors.

“Currently, Zhejiang’s economic structural adjustment and (industrial) upgrading is at a critical stage. The risk from guarantee chains is still rather large,” the Zhejiang branch of the China Banking Regulatory Commission warned in February.

MUTUAL GUARANTEES

Unlisted polyester yarn producer Hangzhou Jianjie Chemical Fiber Co Ltd was recently liquidated following the default of another textile firm whose debts Jianjie had guaranteed, China Business News, a national newspaper, reported.

Jianjie’s collapse in turn affected five other textile firms. In all, 3 billion yuan ($480 million) in bank loans to the six firms are at risk, the paper said.

“After (Jianjie Chemical Fiber) went bankrupt and was liquidated, companies with mutual guarantees had to take on more debt,” the paper quoted Zhu Rujiang, director of the Xiaoshan District Funding Chain Risk Prevention and Mitigation Leadership Group, as saying.

“They can still handle this debt, and they will have no trouble surviving, but a key requirement is that banks can’t withdraw their loans,” he said, according to the paper.

Zhu’s group was set up to mediate between banks and companies, according to the district government’s website. Zhu declined to comment when Reuters reached him by phone.

China Business News also reported that Hangzhou Zhongxin Steel Structure Manufacture Co Ltd, which makes scaffolding, had shut down and could place another 1.2 billion yuan in bank loans to four other companies at risk.

Zhongxin, whose website is no longer accessible, couldn’t be reached for comment.

“The crisis of mutual guarantees is very serious and there is no good solution for this problem,” said Zhou Dewen, vice chairman of the China Association of Small and Medium Enterprises in Wenzhou, another prosperous city in Zhejiang.

Source: Reuters “In wealthy Chinese city, debt guarantees spark default contagion

Related posts:

  • China to let banks sell off loans in prelude to possible bailout dated August 11, 2013
  • Loan scheme at Shanghai Pudong branch deepens credit worries dated January 11, 2013

China: Choking smog over eastern provinces spreads into Beijing


  • Heavy smog seeps into Shanghai Hongqiao International Airport

    Heavy smog seeps into Shanghai Hongqiao International Airport

Air quality index above ‘severe’ in capital as threat grows, while Shanghai breathes easier

The massive smog cloud choking the eastern provinces since midweek expanded northwards to Beijing yesterday.

The air quality index in the capital was as high as 356 at 9pm, ending a week-long streak of blue-sky days. Anything worse than 300 is considered “severe”, the highest rating on the six-level rating system.

Shanghai residents saw air pollution levels ease slightly.

The pollution-monitoring station atop the US embassy in Chaoyang district showed PM2.5 levels – potentially harmful particles less than 2.5 microns in size – of 473 micrograms per cubic metre at 9pm. The World Health Organisation’s safe limit for PM2.5 is 25 mcg. The situation was even worse in the surrounding province of Hebei . The AQI in the provincial capital, Shijiazhuang , hit the top of the 500-point air quality index yesterday evening.

The National Meteorological Centre maintained the “orange” smog alert it issued nationwide on Friday.

Serious pollution was expected to continue in Anhui , Beijing, Hebei, Jiangsu, Tianjin and Zhejiang until this afternoon.

In Nanjing , which has been the centre of the current smog episode, the air quality index continued to hover around 300. Schools in the Jiangsu provincial capital have been closed since Wednesday to protect children from the potentially hazardous air.

Some 170 domestic flights into and out of Beijing were affected by the smog yesterday and 93 were cancelled, according to the Civil Aviation Resource Net of China.

A total of 111 domestic flights were cancelled in Nanjing yesterday, leaving 8,000 passengers stranded, according to CCTV.

In Shanghai – a major aviation hub with two international airports – some 483 domestic flights were affected and 144 were cancelled, even as the air quality improved slightly.

Authorities lifted a “yellow” smog alert yesterday afternoon after the air quality index drifted below 300.

On Friday, the municipal government had closed schools, halted the worst- polluting factories, frozen road works and pulled nearly a third of government vehicles out of service as PM 2.5 levels exceeded 600 mcg.

Chai Fahe , vice-director of the Chinese Research Academy of Environmental Sciences, told CCTV that the pollution had to be tackled by all regions simultaneous since smog was not bound by borders. “Every region has to clean its own mess instead of waiting for others to go first,” Chai said.

Many tried to live with the smog, with a group of catwalk models donning surgical masks during an outdoor jewellery show in Nanjing on Friday.

On the other hand, CCTV says in its morning news on December 8 that in addition to heavy smog in Anhui, Beijing, Hebei, Jiangsu, Tianjin and Zhejiang, there is heavy smog in quite a few cities in Fujian Province now. There was such heavy smog for two days in January, 2013 there and the smog now is expected also to last 2 days.

Source: CCTV “Morning news” (summary by Chan Kai Yee based on the report in Chinese”, Reuters “Choking smog over eastern provinces spreads into Beijing”

Related posts:

  • Smog descends again on northeast China, closing roads, airport dated November 25
  • China: Thick Smog Blocked Road, Train, Air Traffic for 2 Days in Three Northeast Provinces October 21
  • Beijing and surrounding Regions blighted by smog yet again February 18

China: Kindergarten teacher lifted boy by his ears ‘just for fun’


Ming Pao reports: Recently a photo was posted in a microblog showing a young female teacher smiling as she lifts an infant boy about 10 centimeters off the floor, with a hand grasping each of his ears. The boy’s ears were distorted and he was crying with his mouth wide open.

This was followed by photos showing an infant with mouth sealed with a packaging tape, infant having been thrown into a rubbish bin, infant with head in a water bucket and infant boy and girl kissing each other.

The photos have been intensively reblogged and made net users furious. They said, “How can such an evil girl be a teacher.” Through intensive search, they find that the offender is Yan Yanhong, a teacher at Blue Peacock Kindergarten in Wenling City, Zhejiang Province.

Wenling City Education Bureau ordered the kindergarten to fire Yan and Tong Qingqing, the teacher there who took the photos. Local police are to affix criminal liability on Yan while holding Tong under administrative detention for 7 days.


Xi Jinping’s time in Zhejiang: doing the business


This is the third and final of SCMP’s “three-part-series” attempt to solve the mysteries of Xi Jinping. The first part can be found in my post “The rise of Xi Jinping, China’s next leader” the day before yesterday; the second “Xi Jinping, Description by His Colleagues, Friends, etc. in Fujian” yesterday.

It is a pity there are not descriptions of Xi by his colleagues and friends in this part.

SCMP says, “For clues about how China’s leader-in-waiting Xi Jinping might manage the world’s second-largest economy, Zhejiang province is a good place to start looking.

“The 3-1/2 years Xi spent at the helm of the mainland’s richest province are regarded as a transformative period, during which Zhejiang expanded its private sector and moved toward cleaner, more innovative industries.

“After arriving in the autumn of 2003, Xi, as governor and party secretary, set about encouraging factories and heavy industry to move further inland in favour of privately funded research and development facilities. The campaign paid off: R&D investment by private industry increased four-fold to 31.6 billion yuan (US$4.96 billion) in 2007, from 5.6 billion yuan (US$879 million) in 2003.”

“He set about developing plans to continue that success. One was to encourage traditional labour-intensive industries, such as manufacturing, to relocate to provinces further inland where land and labour were more abundant, while supporting and attracting to Zhejiang more innovative businesses.”

“‘Many of the businessmen in Zhejiang started from scratch, but they worked very hard and became wealthy,’ Xi said in December 2003. He noted that one-third of the mainland’s 500 biggest companies were based in Zhejiang – 30 of them with more than 10 billion yuan (US$1.57 billion) in assets.

“To gain a better understanding of private business, Xi visited many big private companies when he was in Zhejiang. The first one he went to was Geely, headquartered in Hangzhou. It was the only carmaker in the province.

“Soon afterwards, Xi introduced nine measures to support Geely, including encouraging Zhejiang taxi companies to use Geely vehicles. Geely is now one of China’s top carmakers.

“The province’s gross domestic product continued to expand at a brisk pace during Xi’s tenure, growing to 1.8 trillion yuan (US$283 billion) from 939 billion (US$147 billion)- a 14 per cent increase.

“To better promote private business, Xi Jinping had another plan: to work more closely with Shanghai, the nation’s financial centre, and Jiangsu, Zhejiang’s neighbour.

“Xi’s philosophy was to let Shanghai lead Zhejiang and Jiangsu in the development of the Yangtze River Delta.”

“Xi did not mind letting Shanghai take charge. In a plan to establish an international shipping centre for the region, Xi decided to let Shanghai manage Yangshan port, a deepwater container port in the south of Shanghai’s Hangzhou Bay. Construction started in 2002 and it began operation in 2005.”

“In March 2007, Xi was appointed Shanghai party chief. He replaced Han Zheng, who had served as acting party secretary after former party secretary Chen Liangyu was removed for misappropriating money from the Shanghai social security fund.”

“When Xi arrived in Shanghai, he had the important task of getting the city through the social security fund scandal and had to flex his political muscle at a critical time, analysts said.”

“Xi ignored approaches from some influential Americans to let a US company build what will eventually become Shanghai Tower – designed by San Francisco-based architectural firm Gensler.

“Xi decided that such an iconic tower – located in the Lujiazui financial district and slated to become the second-tallest building in the world – had to be built by a Chinese firm.

“Shanghai Construction expects to complete the 632-metre tall building in 2014.”

For details, please visit SCMP website at:

http://www.scmp.com/news/china/article/1068825/chinas-leadership-transition-xi-jinpings-time-zhejiang

Related post:

The Mystery of Xi Jinping dated February 15 (https://tiananmenstremendousachievements.wordpress.com/2012/02/15/the-mystery-of-xi-jinping/)

China at Cross Road 2: Xi Jinping Rumors and ‘Old Man’ Politics dated September 12 (https://tiananmenstremendousachievements.wordpress.com/2012/09/12/china-at-cross-road-2-old-man-politics/)

Xi Jinping Economic Reformist, Ex-Australian PM dated September 28 (https://tiananmenstremendousachievements.wordpress.com/2012/09/28/xi-jinping-economic-reformist-ex-australian-pm/)

Xi Jinping, Description by His Colleagues, Friends, etc. in Fujian dated yesterday (https://tiananmenstremendousachievements.wordpress.com/2012/10/24/xi-jinping-description-by-his-colleagues-friends-etc-in-fujian/)


SCMP.com – Onslaught continues as south braces for storms


SCMP’s Stephen Chen reports on Jul 17, “Heavy downpours that swept across southern China last week have returned, stronger and spreading across a greater area – threatening to compound problems as residents try to cope with the onslaught of storms.

 

“The National Meteorological Centre forecast yesterday that a thick swathe of storms would hit almost every southern province, particularly those south of the Yangtze River, from yesterday to tomorrow, from landlocked Yunnan to coastal Zhejiang . More than 220mm of rain is expected in regions such as Guizhou .

 

“The central government ordered officials at all levels to be on high alert for problems arising from flooding, landslides, lightning and hail. The emergency warning level was raised to “red”, the highest, in regions such as Hunan, where residents, the military and government officials are still reeling from their struggles to cope with flooding from last week.

 

“Millions of people have been affected by the storms, largely through property losses, and several people have been killed, according to state media.”

 

“Oddly enough, some provinces that had been hit hardest by storms reported no casualties. That included Zhejiang, which saw its worst flooding in some of its major rivers since 1958, and Hunan, where more than half a million people were affected and at least 160 homes were destroyed.

 

“The impact on regional economies has also been devastating. Zhejiang reported losses of about 3.3 billion yuan (HK$4.05 billion), Hubei put its losses at 1 billion yuan, and Guizhou’s estimate was about 500 million yuan.”

 

“Rapid urbanisation in the absence of adequate drainage systems in several big cities has worsened the flooding. Water reportedly rose to waist-level in some parts of central Chongqing, Wuhan, Nanjing and other cities, forcing drivers to abandon their cars and patients to be evacuated from hospitals. Some cities dispatched armed police forces to help evacuate people from flooded buildings.”

via SCMP.com – Onslaught continues as south braces for storms.