Wenzhou launches reforms to tackle debt crisis

WENZHOU - The eastern city of Wenzhou announced Wednesday that it has launched a series of financial reforms to help tackle the debt crisis of local small and medium-sized enterprises (SMEs).

The city will set up 100 micro-finance firms, two to four private capital management companies, and a private financing register center to transform the city into a private capital distribution center, the city government said in a statement.

These measures will help make private lending transparent and legal, the statement said.

The city will also pilot the market-based reform of interest rates, allowing the deposit and lending rates to reach up to four times of the benchmark rates, it said.

The State Council, or China's cabinet, has cut taxes and ordered state-owned banks to ease the credit squeeze to salvage cash-strapped SMEs in Wenzhou after Premier Wen Jiabao's tour of the city on October 5.

Since April, Wenzhou, an economic hub in Zhejiang province known for its successful entrepreneurs, has been hit by a severe debt crisis.

Many SMEs have been forced to turn to the high-interest underground lending market as they couldn't get bank loans after the government tightened lending to tame inflation. Many later found they could not repay the loans due to bad economic conditions and investment losses.

So far this year, one-fifth of the city's 360,000 SMEs have stopped operating due to cash shortages, and nearly 100 business owners disappeared or declared bankruptcy to invalidate debts owed to individual creditors from the informal lending market, causing public panic, according to the city's council for SMEs.