“Many things that shouldn’t have happened, happened because of money,” says Wang Youliang.
“The situation [in Wenzhou] is a secret everybody knows, but you can’t talk about it in public.”
He is a young entrepreneur and shoe manufacturer working in Wenzhou, China. Among his friends, five failed factory owners fled and one killed himself.
The country that is predicted to be the next big super power on the world economic stage has its own hidden crisis.
During the 2011 credit crunch which continued through last year, about 100 managers or heads of private companies in Wenzhou declared bankruptcy, disappeared or committed suicide, leaving behind a debt of about $1.6 billion.
If it wasn’t alarming enough, Professor Larry Lang of Chinese University of Hong Kong, and well-known TV host, stated during a lecture that the Chinese regime is on the brink of bankruptcy and “every province is a Greece.”
While the EU struggles to hold together and the USA show hints of recovery, China is dealing with a faltering economy, failing for the first time since the late 1990’s to achieve the usual 8-10% growth rate that had become the norm.
Wenzhou, a middle-size coastal Chinese city, was largely unknown to the general public. Despite being the first to set up individual and private enterprises in China, and one of the richest and most productive cities in the country, only people involved in manufacturing and the export of goods really knew it existed.
But by 2011, Wenzhou was the new symbol and epicenter of the Chinese economic crisis.
At the end of 2008, after the US crisis had exploded and spread to the EU, Beijing launched a 570 billion USD stimulus in order to keep the economy going. Authorities were deliberately pushing investments into real estate, making the speculative bubble grow quickly.
Everybody wanted to participate into the game, including small and medium entrepreneurs who couldn’t find financial support from the state banks to invest.
They resolved this problem by setting up an illegal lending and borrowing system, accepting usurious interest rates from underground banks.
In 2011 the media reported from Zhejiang province, and in particular from the Wenzhou district, several cases of entrepreneurs, usually small-medium size companies’ owners, who declared bankrupt, fled the country or committed suicide, leaving behind huge debts and dying businesses. Many companies closed and a lot of workers lost their jobs.
It was a disaster.
Last March, Beijing authorities resolved to try and get a hold of the situation by launching a pilot financial reform program to make Wenzhou a special economic zone. They put a particular focus on creating a legal platform to regulate transactions between private citizens.
China is still a very rich economy. But in a globalized world, its economy has become a part of the world’s crisis and is decelerating.
It’s too early to say whether Wenzhou’s reform will be successful or not.
But the troubles of its entrepreneurs suggest there may be more hidden problems lurking below the surface for the world’s up-and-coming economic powerhouse.