A Bunch Of Chinese Manufacturing Bosses Just Defaulted And Fled Their Failing Businesses

Business Insider ^ | 09/23/2011 | Linette Lopez

[SeekAndFind]

China's papers are calling it their "own subprime crises."

According to Shanghai Daily, 7 large business owners, mostly manufacturers, fled the city of Wenzhou on September 12th. They left thousands of employees jobless and hundreds of millions in unpaid debt.

This is one of the consequences of China's "black bank," the massive undergound banking system that has been growing at a dizzying pace since the government started tightening credit to curb inflation. Banks favor state-owned businesses when it comes to lending, so when private business owners need to take out a loan, they turn to the alternative, to the underground.

Going to the undergound has two consequences: For those who take out loans, it means having to pay much higher interest rates than they would if they borrowed legitimately. For the lender, it means that if a loan goes unpaid, there isn't much that can be done about it.

In other words, if business is bad for a business owner with an underground loan, they can just walk away. So they do.

One of the runaway employers is Hu Fulin, the owner of Zhejiang Center Group (ZCG). ZCG owns the most popular sun-glass company in China (they make 20 million pairs a year) and employed 3,000 people. He also invested in real estate and the renewable energy industry.

Hu is penniless now, but he owes his employees their August and September salaries (about $1.5 million), and he hasn't paid his suppliers either. The city government has set up a task force to figure out how to track all of Hu's loans and repay his debts.

[WayneS]

Going to the undergound has two consequences: For those who take out loans, it means having to pay much higher interest rates than they would if they borrowed legitimately. For the lender, it means that if a loan goes unpaid, there isn't much that can be done about it.

Really? I have a sneaking suspicion the Chinese are well versed in the "policies and procedures" of loan-sharking.

[gaijin]

China & the US: more like each other every day.

When do they start harvesting our organs?

[ResponseAbility]

Hu’s Fulin who here?

[forgotten man]

Maybe the bosses went to medical school.

[Centurion2000]

Black banks are also more likely a Triad front for laundering.

Cross / default on the Triads at your own risk.

[NativeSon]

I may be wrong but the way I understand it, the Chinese gangsters and crime syndicates frown upon people not paying debts.

They'll probably send them a sternly written letter.

[PGR88]

If its a ¨black bank¨ then presumably it was all local, private money.

As such, I wouldn´t see it as a systemic risk.

[mojito]

China is irrevocably and unfathomably corrupt, and it will be their undoing.

[Dilbert San Diego]

Is China still really communist? The banks give preference to state owned businesses in lending, but are these private banks, or state owned banks?

And how does a communist society tolerate underground banks or gangsters or loan sharks? Just asking the question. It seems that China has some combination of communism with unregulated free markets. And some of those free markets are outside any government control. Which seems a contradiction, in that under communism, theoretically every activity is under state control.

[fso301]

For the lender, it means that if a loan goes unpaid, there isn't much that can be done about it.

True but to a lender, kidneys are worth no more than their market value. However, I suspect borrowers believe the value of their own kidneys to be far greater than the market.

[SeekAndFind]

RE: Is China still really communist?

If we have RINO’s, they have CINO’s.

[StormEye]

"He also invested in real estate and the renewable energy industry."

I'm not surprised he's broke.

[SaraJohnson]

If China goes through economic troubles, the Western dummy “smart citizens of the world” will find out about Chinese communism.

Whereas Americans spoke of putting the heads of scaming banksters and corporate shake down artists on a pike, the Chinese will do it.

We are the world. We are the children...

[Zhang Fei]

Is China still really communist? The banks give preference to state owned businesses in lending, but are these private banks, or state owned banks?

China is run by a Leninist oligarchy. Apart from that, it's a capitalist country with substantial state-owned assets. The only difference between state-owned companies and privately-owned companies is that state-owned companies have a harder time laying people off (even though they do carry out layoffs) and much have easier access to loans. China is essentially Taiwan before the latter adopted democracy. State-owned firms do not have centrally-planned production targets - they are managed like private companies, meaning that they are in business to maximize profit, even when that means laying off workers.

[Zhang Fei]

So what exactly is a Leninist oligarchy? It’s a hereditary aristocracy that employs Leninist organizational methods - including state terror and periodic massacres - to maintain its hold on power.