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Wenzhou is the first domino fell it?

       Wang Tao

    Over the past two weeks, the world's various financial news media are reporting trouble Wenzhou private lending news. All investors are asking the case of private lending and China China's concerns about the entire financial system. News reports and commentators talk alone, it seems that China is caught in a European sovereign debt and comparable U.S. subprime mortgage crisis, the huge debt crisis. Wenzhou problem in the end be? tow rope Chinese folk indebtedness in the end how serious?

    Status of private lending in Wenzhou

    In recent weeks, small and medium enterprises and private lending around Wenzhou trouble reports filled the various news media. China's coastal Zhejiang Province,battery clip Wenzhou is a prefecture-level city to a vibrant private economy, vibrant private capital market, local real estate market in speculative investments and the most popular types of investment assets is known.

    Wenzhou GDP less than 1% of the national total, it is alleged that over 40 million businesses (mostly small businesses), these companies highly dependent on the private lending market financing. According to domestic media reports, the People's Bank of China to a recent survey of Wenzhou nearly 90% of households and 60% of companies are involved in private lending market. According to the People's Bank branch in Wenzhou city official forecastbooster cables as of end of June 2011, the scale of private lending has reached 20% of total bank credit, which is about 110 billion yuan, 80 billion yuan a year ago have increased considerably. But many people think (we also agree with this point of view) this figure underestimates the actual size of private lending. People's Bank in 2004,ratchet tie dowm when the same survey shows the scale of private lending in Wenzhou reached $ 42 billion. It is estimated that the size of Wenzhou's private lending may be comparable with the size of formal bank credit. If so, then private lending will total 500 billion yuan.

    Of course, the problem of the ups and Wenzhou private lending is not new. Current round, the government in 2008-2009, after the massive credit expansion, and in 2010 began to tighten credit when the non-formal loans (including the bank's balance sheet credit and private loans) began to grow rapidly. The official deposit and lending rates relative to inflation and the real economy in terms of return on investment is very low, also contributed to the occurrence of the above. Private lending interest rates, from about 20% of direct lending to loans by more than 40% of the intermediate range, attractive to investors, but as a business is too high for the sustainable financing costs. In fact, the People's Bank of China branch in Wenzhou Center estimated in 2011 only 35% of the private lending industry into the real economy than the 2004 ratio of over 90% dropped significantly. The rest of the loan or to enter the real estate industry, or non-formal financial intermediaries in the flow between.

    As the real economic slowdown, the real estate market cooled, and the formal bank loans continued to tighten, some companies may be unable to fulfill obligations. Since April this year, according to media reports there are more than 90 business owners fled because of inability to pay debts, there are only 20 in September. The media hype surrounding these cases, further stimulated the already asset quality of banks and real estate market slowdown had investors worried about anxiety, lack of information on private lending more to the problem appear more serious.

    From the overall perspective of private lending

    Chinese private lending market be? Due to people's non-formal definition of the different loans, estimated value of the difference is huge. Until recently, the market is most worried about the banking sector's balance-sheet credit ─ ─ trust loans, entrusted loans, commercial paper and other so-called "social finance" form. Critics and the media called the "shadow" banking system. Investors worried that (i) balance sheet credit asset quality is particularly poor; and (ii) despite tightened bank lending, but other forms of "social finance" is still rising rapidly, affecting the control of monetary tightening and inflation effects.

    We believe that after the first two years of rapid credit expansion, as the second quarter of 2011, the balance sheet of credit of about 12 trillion yuan, total assets of the Trust is about 3.7 trillion yuan (only part of the trust assets are included in the balance sheet credit in).

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