Small Companies In China Feel The Squeeze

Formal banks won’t lend. The gray market charges 300 percent a year

Wenzhou-based Topsun Group makes diesel generators and runs hotels in China. Chairman Wang Chonghuan is a typical entrepreneur—hard-working, hands-on, ready to pounce on any opportunity, accustomed to bouncing back from difficulties. Yet he doesn’t sound very optimistic when he talks about the credit situation that China’s small business sector faces today. “I have been doing business for 30 years, and I have never seen such high interest rates,” says Wang. “Borrowing any money almost amounts to committing suicide.”

Small and medium-sized companies in Wenzhou are getting hit hard by the credit crunch, which the central authorities have imposed on companies to stem speculative investments and slow inflation. Middling-sized firms in exporting provinces such as Guangdong in southern China and the towns of the Yangtze River Delta are struggling, too. Many have already felt the pinch of higher wages, rising raw material costs, and the appreciating currency.

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