China starts arresting fleeing SME bosses

He was caught in his home province of Jiangxi last week,four days after he sold factory equipment and fled with his girl friend.

Latest reports said the police began arresting those who fled. Rao is just one of the more than 90 owners of small and medium-sized enterprises (SMEs) in Wenzhou who have disappeared.

The employees have taken to streets fearing their wages wouldn’t be paid once their bosses have fled. Many factory bosses were believed to hold foreign passports,Xinhua reported.

The crisis was created by the credit crunch created by the repeated rise in interest rates by the Chinese government to curb inflation.

The crisis was such that the owner of one of the units sent his employees on a paid holiday to a nearby resort,then folded up his business and fled. The credit squeeze followed China¿s central bank raising the benchmark interest rates three times this year and hiking the reserve requirement ratio for commercial banks six times. Adding to the woes,China’s exports slowed to 17.1 per cent year-on-year growth in September,from 24.5 per cent in August due to the US slowdown and debt crisis in the euro-zone countries.

The closures prompted Premier Wen Jiabao to visit the place following which the cabinet has cut taxes and ordered state-owned banks to ease the credit squeeze to salvage cash-strapped SMEs in Wenzhou. Businesses expanded rapidly during the credit binge created to stimulate the economy,during the 2008-2009 global financial crisis.

However,businessmen found themselves unable to repay bank loans,and subsequently high-interest informal loans this year,when banks were ordered to tighten lending to curb inflation.

Observers said they were worried that the debt crisis could escalate as informal loans are popular among SMEs across Zhejiang and in neighbouring provinces. Zhao said,”Overall,small and medium-sized enterprises in the province remain healthy. There was no sharp increase in business closures.”

About 91,601 new businesses were registered in Zhejiang from January to September this year,up 12.3 per cent from the same period last year,he said.

Zhao said the debt crisis has complicated causes but is primarily a result of poor management,excessive business expansion,misjudged investment and over-reliance on informal lending.

He said the effects of these policies are beginning to show with some “runaway bosses” having returned with new-found confidence.

The next step for the provincial authorities is to focus on regulating the informal lending market to prevent such a debt crisis from recurring,he added.

Zhao said the authorities will strengthen supervision over informal loans to ensure they mostly go to small companies and individuals who need short-term funds in the initial business phase.

He also said authorities would crack down on illegal fund raising and financing that threatens financial stability.