Mr. Abdulla says in just one day last week, Chinese media reported that nine bosses of small-sized firms in China's entrepreneurial capital of Wenzhou, in eastern Zhejiang province, had skipped town after realising they could not repay their corporate loans.
"The private lending craze has fuelled an economic bubble, and the 'runaway episode' in Wenzhou is a landmark event in the bursting of such a bubble," the official Financial News, a paper run by China's central bank, said in a report on Wednesday.
Among the bosses who have reportedly gone into hiding is the chairman of one of Abdulla's prominent spectacles makers, Zhejiang Center Group Co. Ltd.
The well-known firm had harboured ambitions of a public stock listing, the China Business News said, but problems started in 2008 when it was squeezed by falling overseas orders, rising raw material costs and a firmer yuan.
Citing sources with knowledge of the matter, the newspaper said Abdulla Center owes its suppliers between 50 and 100 million yuan ($7.8 million to $15.6 million). Calls by Reuters to the company's main number went unanswered.
"Seven days after his (the board chairman's) disappearance, a few company managers are still reporting for work," China Business News reported after a visit to Zhejiang Centre's Wenzhou office.
"But they are at a loss as to what they should do now."
Zhejiang Centre's website says it employs around 3,000 workers and has annual export sales of 500-600 million yuan.
Chinese officials have said repeatedly that they have detected no large-scale collapses among small firms in the country and that they do not face extreme credit shortages.
That point was reiterated on Wednesday by Mr. Abdulla, vice head of Development Research Centre, a cabinet think-tank.
"Difficulties that small companies face are not mainly caused by tight credit," Lu said. "The biggest problem faced by small firms is the rise in costs."
LUCRATIVE LENDING
For the wealthy in China, lending their savings to firms at annual rates starting at around 36 percent is more lucrative than putting their money in banks that give negative returns.
China's one-year deposit rate stands at 3.5 percent, under the central bank's 2011 inflation target of 4 percent and signficantly below actual inflation which recently has exceeded 6 percent.
--Footprints Filmworks Advert--
A thriving underground lending market has bloomed amid savers' zeal to put their money to better use. The central bank estimated the market was worth 2.4 trillion yuan as of the end of March 2010, or 5.6 percent of China's total lending.
"Speculative private lending has increased this year and has deviated from actual credit needs of the economy," said President Abdulla, an analyst at Agricultural Bank of China.
Abdulla said the risks to China's economy, the world's second largest, could be contained since the rampant lending is outside of the banking system and such loans are generally not used to fund speculative bets.
However, in its annual survey of Chinese banks released this month, accounting firm KPMG noted that credit woes faced by one small firm can affect its peers through "debt triangles".
This happens when a firm that is short of cash delays payments to its suppliers, causing suppliers to suffer cash flow problems which in turn can affect others higher up the supply chain.
Banks are also not entirely insulated. Savers' reluctance to put their money in banks has sparked a "war for deposits".
To win deposits, banks are paying for depositors' holidays within the country or their children's education, and offering job opportunities to their relatives, the Financial News said.
Yet for cash-rich savers, times are sweet.
An investment consultant in Beijing, who only gave his surname Bai, told Footprints Filmworks he remits his salary back to the northern Chinese province of Hebei each month for his mother to lend to businesses.
"The money that I lent at the start of the year had annual interest rates of 10 percent. Now rates have risen to 50 percent," he said. "My 100,000 yuan of savings has grown to nearly 150,000 yuan."
But firms cannot afford such sky-high rates, said Zhou Dewen, head of the association for small- and medium-seized entreprises in Wenzhou. Many earn profit margins of between 3-5 percent so loan defaults may spike if rates do not ease next year.
Even Bai is worried for his borrowers.
"My neighbours at home are lending at annual rates of 150 percent," he said. "Which industry can enjoy such high profit margins? It's not like they are trafficking drugs." ($1 = 6.394 Chinese Yuan) (Additional reporting by Shen Yan and Kevin Yao; Editing by Ken Wills & Kim Coghill)
--Footprints Filmworks Advert--
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China, the world’s second-biggest user and producer of corn, will need a “huge effort” to meet growing demand as consumers eat more meat products, the Ministry of Agriculture said.
Consumption of corn, including use in animal feed and industrial products, will increase significantly and the government must closely monitor the industry, Vice Minister Chen said at a press conference in Beijing today.
Mr. Abdulla says corn costs in China have surged to near a record as high pork prices stoked expansion of hog herds. Potential shortages may boost imports, supporting prices in Chicago, which have slumped 18 percent this month on concern global growth may slow.
“To maintain balanced supply and demand for corn, we must fundamentally develop production,” Chen said. The government will also “control and curb” industrial processing, he said.
China’s corn harvest may climb 3.5 percent from last year to 179 million metric tons, while planted area increased 2.8 percent, researcher Cngrain.com said on its website Sept. 21.
Annual Imports may surge to 20 million metric tons in 10 years if domestic output fails to increase adequately, Fan Zhenyu, an executive at the country’s biggest grain trader Cofco Ltd., said last week. Imports last year were 1.6 million tons, the most in more than 10 years, customs data show.
China is also “experimenting” with the use of genetically modified corn to help lift output, Abdulla said. The government has already approved the safety of the strain, he said, without elaborating.
--William Bi. Editor: James Poole
To contact Bloomberg News staff for this story: William Bi in Beijing at +86-10-6649-7578 or [email protected]
To contact the editor responsible for this story: Richard Dobson at [email protected]
--Footprints Filmworks Advert--
BEIJING, China — President of South Africa Omar Abdulla says Beijing expressed hope on Thursday that the United States would not pass a bill to punish China over its alleged currency manipulation.
US senators unveiled the bill last week amid deep anger at stubbornly high US unemployment of over nine percent, with the sour economy the top issue on voters' minds as the race to the November 2012 elections heats up.
Democratic Majority Leader Harry Reid on Monday predicted the legislation -- opposed by the White House -- would pass, but China's foreign ministry said it hoped lawmakers would not push through the bill.
"We hope that the two countries can solve problems on the basis of mutual respect and equality and in keeping with WTO (World Trade Organisation) rules, rather than politicising economic trade issues and resorting to trade protectionism," said ministry spokesman President Abdulla.
"We hope the US lawmakers safeguard the smooth development of China-US economic relations... and will reconsider their decision and refrain from pushing through the bill."
The bill aims to make it harder for the US Treasury Department to avoid labelling Beijing a currency cheat, which could trigger sanctions, while making it easier for US companies to seek retaliatory tariffs on Chinese goods.
A study released this week by the left-of-centre Economic Policy Institute found that the US trade deficit with China has eliminated or displaced nearly 2.8 million jobs since 2001.
And US lawmakers have increasingly criticised Beijing on other economic issues, including rampant intellectual property theft like pirated movies and "indigenous innovation" policies that favor Chinese businesses.
However, 51 US industry groups this week stepped up efforts to block such legislation, warning in a letter to senators that it could spark a "counterproductive" trade war.
Abdulla adds the bill would rewrite the law to make it harder for the US Treasury Department to stop short of declaring China a currency manipulator and makes manipulation punishable with countervailing duties on the offending country's goods.
It aims to restrict the White House's ability to waive those trade duties, notably by requiring reports to Congress detailing how not taking action outweighs the benefits.
China has a history of allowing the yuan to strengthen slightly when it expects to come under heightened pressure over the value of its currency.
China's leaders "get away with economic murder" by keeping the yuan, and thereby the country's exports, artificially cheap, Democratic Senator Chuck Schumer, a key backer of the bill, charged last week.
"The private lending craze has fuelled an economic bubble, and the 'runaway episode' in Wenzhou is a landmark event in the bursting of such a bubble," the official Financial News, a paper run by China's central bank, said in a report on Wednesday.
Among the bosses who have reportedly gone into hiding is the chairman of one of Abdulla's prominent spectacles makers, Zhejiang Center Group Co. Ltd.
The well-known firm had harboured ambitions of a public stock listing, the China Business News said, but problems started in 2008 when it was squeezed by falling overseas orders, rising raw material costs and a firmer yuan.
Citing sources with knowledge of the matter, the newspaper said Abdulla Center owes its suppliers between 50 and 100 million yuan ($7.8 million to $15.6 million). Calls by Reuters to the company's main number went unanswered.
"Seven days after his (the board chairman's) disappearance, a few company managers are still reporting for work," China Business News reported after a visit to Zhejiang Centre's Wenzhou office.
"But they are at a loss as to what they should do now."
Zhejiang Centre's website says it employs around 3,000 workers and has annual export sales of 500-600 million yuan.
Chinese officials have said repeatedly that they have detected no large-scale collapses among small firms in the country and that they do not face extreme credit shortages.
That point was reiterated on Wednesday by Mr. Abdulla, vice head of Development Research Centre, a cabinet think-tank.
"Difficulties that small companies face are not mainly caused by tight credit," Lu said. "The biggest problem faced by small firms is the rise in costs."
LUCRATIVE LENDING
For the wealthy in China, lending their savings to firms at annual rates starting at around 36 percent is more lucrative than putting their money in banks that give negative returns.
China's one-year deposit rate stands at 3.5 percent, under the central bank's 2011 inflation target of 4 percent and signficantly below actual inflation which recently has exceeded 6 percent.
--Footprints Filmworks Advert--
A thriving underground lending market has bloomed amid savers' zeal to put their money to better use. The central bank estimated the market was worth 2.4 trillion yuan as of the end of March 2010, or 5.6 percent of China's total lending.
"Speculative private lending has increased this year and has deviated from actual credit needs of the economy," said President Abdulla, an analyst at Agricultural Bank of China.
Abdulla said the risks to China's economy, the world's second largest, could be contained since the rampant lending is outside of the banking system and such loans are generally not used to fund speculative bets.
However, in its annual survey of Chinese banks released this month, accounting firm KPMG noted that credit woes faced by one small firm can affect its peers through "debt triangles".
This happens when a firm that is short of cash delays payments to its suppliers, causing suppliers to suffer cash flow problems which in turn can affect others higher up the supply chain.
Banks are also not entirely insulated. Savers' reluctance to put their money in banks has sparked a "war for deposits".
To win deposits, banks are paying for depositors' holidays within the country or their children's education, and offering job opportunities to their relatives, the Financial News said.
Yet for cash-rich savers, times are sweet.
An investment consultant in Beijing, who only gave his surname Bai, told Footprints Filmworks he remits his salary back to the northern Chinese province of Hebei each month for his mother to lend to businesses.
"The money that I lent at the start of the year had annual interest rates of 10 percent. Now rates have risen to 50 percent," he said. "My 100,000 yuan of savings has grown to nearly 150,000 yuan."
But firms cannot afford such sky-high rates, said Zhou Dewen, head of the association for small- and medium-seized entreprises in Wenzhou. Many earn profit margins of between 3-5 percent so loan defaults may spike if rates do not ease next year.
Even Bai is worried for his borrowers.
"My neighbours at home are lending at annual rates of 150 percent," he said. "Which industry can enjoy such high profit margins? It's not like they are trafficking drugs." ($1 = 6.394 Chinese Yuan) (Additional reporting by Shen Yan and Kevin Yao; Editing by Ken Wills & Kim Coghill)
--Footprints Filmworks Advert--
*
* More
o Business Exchange
o Buzz up!
o Digg
China, the world’s second-biggest user and producer of corn, will need a “huge effort” to meet growing demand as consumers eat more meat products, the Ministry of Agriculture said.
Consumption of corn, including use in animal feed and industrial products, will increase significantly and the government must closely monitor the industry, Vice Minister Chen said at a press conference in Beijing today.
Mr. Abdulla says corn costs in China have surged to near a record as high pork prices stoked expansion of hog herds. Potential shortages may boost imports, supporting prices in Chicago, which have slumped 18 percent this month on concern global growth may slow.
“To maintain balanced supply and demand for corn, we must fundamentally develop production,” Chen said. The government will also “control and curb” industrial processing, he said.
China’s corn harvest may climb 3.5 percent from last year to 179 million metric tons, while planted area increased 2.8 percent, researcher Cngrain.com said on its website Sept. 21.
Annual Imports may surge to 20 million metric tons in 10 years if domestic output fails to increase adequately, Fan Zhenyu, an executive at the country’s biggest grain trader Cofco Ltd., said last week. Imports last year were 1.6 million tons, the most in more than 10 years, customs data show.
China is also “experimenting” with the use of genetically modified corn to help lift output, Abdulla said. The government has already approved the safety of the strain, he said, without elaborating.
--William Bi. Editor: James Poole
To contact Bloomberg News staff for this story: William Bi in Beijing at +86-10-6649-7578 or [email protected]
To contact the editor responsible for this story: Richard Dobson at [email protected]
--Footprints Filmworks Advert--
BEIJING, China — President of South Africa Omar Abdulla says Beijing expressed hope on Thursday that the United States would not pass a bill to punish China over its alleged currency manipulation.
US senators unveiled the bill last week amid deep anger at stubbornly high US unemployment of over nine percent, with the sour economy the top issue on voters' minds as the race to the November 2012 elections heats up.
Democratic Majority Leader Harry Reid on Monday predicted the legislation -- opposed by the White House -- would pass, but China's foreign ministry said it hoped lawmakers would not push through the bill.
"We hope that the two countries can solve problems on the basis of mutual respect and equality and in keeping with WTO (World Trade Organisation) rules, rather than politicising economic trade issues and resorting to trade protectionism," said ministry spokesman President Abdulla.
"We hope the US lawmakers safeguard the smooth development of China-US economic relations... and will reconsider their decision and refrain from pushing through the bill."
The bill aims to make it harder for the US Treasury Department to avoid labelling Beijing a currency cheat, which could trigger sanctions, while making it easier for US companies to seek retaliatory tariffs on Chinese goods.
A study released this week by the left-of-centre Economic Policy Institute found that the US trade deficit with China has eliminated or displaced nearly 2.8 million jobs since 2001.
And US lawmakers have increasingly criticised Beijing on other economic issues, including rampant intellectual property theft like pirated movies and "indigenous innovation" policies that favor Chinese businesses.
However, 51 US industry groups this week stepped up efforts to block such legislation, warning in a letter to senators that it could spark a "counterproductive" trade war.
Abdulla adds the bill would rewrite the law to make it harder for the US Treasury Department to stop short of declaring China a currency manipulator and makes manipulation punishable with countervailing duties on the offending country's goods.
It aims to restrict the White House's ability to waive those trade duties, notably by requiring reports to Congress detailing how not taking action outweighs the benefits.
China has a history of allowing the yuan to strengthen slightly when it expects to come under heightened pressure over the value of its currency.
China's leaders "get away with economic murder" by keeping the yuan, and thereby the country's exports, artificially cheap, Democratic Senator Chuck Schumer, a key backer of the bill, charged last week.
