Credit crunch taking a toll
(China Daily)
Updated: 2004-07-15 15:57

Private investment momentum needs to be nurtured during the current credit squeeze, according to an article in China Business Times. An excerpt follows:

Government's macroeconomic control measures have successfully cooled down some red-hot sectors, according to the latest statistics.

However, the credit squeeze, government's major prescription for cooling the economy, has taken a heavy toll on private enterprises, among which the small and medium-sized have been the hardest hit.

The tightened capital chain has even bankrupted some capital-starved private firms and the number of those on the brink of bankruptcy is on the rise.

It is reported that, under the tight bank loans, interest on private lending has shot up to 12 per cent in Wenzhou, a prosperous city in East China's Zhejiang Province, where private lending is popular.

The current strain on bank loans has to some extent curbed the momentum of private investment, which has boomed since 1998 thanks to the fiscal policy adopted that year.

China's accession to the World Trade Organization (WTO) in 2001 also greatly spurred private investment as more and more industry entry barriers have been torn down.

The on-going strict credit control, however, has the potential to undo this hard-won momentum.

The majority of Chinese enterprises, both State-owned or privately invested, rely on bank loans as their main financing conduit.

As such, the current rigid credit is supposed to have the same impact on both State-owned and private firms.

However, the credit squeeze is primarily a measure to stop the further credit increment, which mainly impacts private enterprises.

It is thus clear that private enterprises are bearing the brunt of the credit squeeze.

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