I’m never quite sure how seriously to take stories like this, but today the LA Times writes about the woes of Wenzhou, a high-flying coastal city in China, which boomed over the past decade and is now beginning to suffer from a bust:
“This whole situation is very serious right now,” said businessman Huang Fajing, owner of a cigarette lighter factory who has had to scale back his business for lack of credit. “I think the crisis is just starting.”
The troubles stem from inequities in China’s banking system, where most loans go to big state-run companies. Small fry depend largely on informal lending pools charging annual interest rates as high as 60%.
Although some of those funds are provided by loan sharks with criminal ties, much of it comes from households and businesspeople looking for better returns than those paid on savings accounts in China’s government-controlled banks. An estimated 90% of all households in Wenzhou and 60% of its firms participate in lending pools, according to the country’s central bank.
….But pressure started to build late last year when the central government decided to hike interest rates and restrict bank lending over worries about inflation and a growing real estate bubble. That credit squeeze soon rippled through the informal market. Thousands of small Wenzhou companies have closed their doors for lack of funding, according to state media.
Maybe this is a sign of trouble to come, maybe not. It seemed worth passing along. But the truth is that it’s really just an excuse to post the last paragraph of this story. Wenzhou is famous throughout China for its ostentatious displays of wealth, and this has prompted outrage over the idea that the central government might bail them out. This produced the following reaction from one of Wenzhou’s business owners:
Guan, the importer of wine and scrape metal, said outsiders don’t understand. “Those people against a bailout probably don’t work hard and just hate rich people,” said Guan, who said he owns property in every city in which he does business. “Wenzhou people take initiative. But sometimes, like in a family, children make mistakes. So the government should come in and help their kids to resolve this difficult situation.”
Class warfare! This guy could come to New York and join the ranks of Wall Street titans without skipping a beat. Mr. Guan seems to have the perfect combination of arrogant condescension, congenital paranoia, casual arrogance, and an unquestioned sense of entitlement. He even has the kind of resentment of the little people that the Wall Street Journal editorial page specializes in. He’d fit right in.