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China's cash-strapped small firms ring alarm bells

(Xinhua)

09:32, October 10, 2011

BEIJING, Oct. 10 (Xinhuanet) -- China's small businesses turned to be the first to ring the alarm as the country is walking a fine line between fighting inflation and maintaining growth.

Some entrepreneurs have disappeared and others have jumped off buildings almost every week since April in Wenzhou City, an entrepreneurial capital in eastern China's Zhejiang province, Xinhua reported.

The sudden disappearance of the business owners has revealed a surprisingly gloomy picture for the small and medium-sized enterprises (SMEs) in China.

RUNAWAY BOSSES

According to a Xinhua investigation, at least 80 cash-strapped businesspeople in Wenzhou have skipped town or declared bankruptcy to invalidate more than 10 billion yuan (1.6 billion U.S. dollars) in debt.

Just last month, two local entrepreneurs in Wenzhou killed themselves by jumping off the buildings and another broke his leg in a similar suicide attempt.

The tragedies in Wenzhou are extreme cases of private SMEs struggling to survive a liquidity crunch amid the country's macro control policies set to curb inflation and cool down the over-heated property market.

In Wenzhou, one-fifth of the 360,000 small and mid-sized businesses have stopped operating due to cash shortages, according to the city's council for small and medium-sized enterprises.

Of the 855 companies surveyed by the Wenzhou Economic and Information Commission, more than 76 percent said they are almost out of money and are struggling to continue production.

But many cash-strapped firms are unable to borrow money from banks, and some have turned to China's underground lending market to pool money from individuals and firms.

The steep rates of the informal loans pushed some businesses to the brink of collapse.


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