The demand was there last spring, he said on a recent afternoon. But his bankers weren’t. They balked at lending him money to buy equipment — and today his export-oriented business is about where it was six months ago.
“I feel like I’m walking in place,” he said.
He has lots of company. While many businesses in the United States struggle to stay afloat and workers collect unemployment checks, China has the opposite problem: an economy, pumped up by expansive lending by state-controlled banks, which is growing too fast to keep inflation and speculation in check.
Beijing’s solution: Create an artificial shortage of credit. The central government has set stringent though undisclosed limits on how much money each bank can lend, clamped down on real estate speculation by limiting the number of mortgages allowed for each citizen and begun cracking down on many forms of semilegal and illegal lending. After months of steady tightening, the controls have finally begun to bite into inflation, business growth, real estate prices and lending.
Lending by Chinese banks jumped 32.5 percent in 2009 in inflation-adjusted terms. That growth slowed to 13.3 percent in 2010 and 7.3 percent in the first nine months of this year. Lending to small businesses has grown slightly faster. But there are so many small businesses and they are expanding so quickly that competition for these loans is especially fierce and difficult, said Nicholas R. Lardy, an economist at the Peter G. Peterson Institute for International Economics in Washington.
The policy makers’ principal goal is to tamp down inflation, which has played a repeated role in causing social unrest, including during the 1989 Tiananmen Square protests. Despite a goal of limiting inflation to no more than 4 percent a year, prices have stubbornly remained about 6 percent higher this autumn than a year ago for consumers based on official gauges — and up to twice that by the estimate of many private economists.
The worst of the credit squeeze this year has compelled at least a few business people to flee the country or even commit suicide. They did so after borrowing money at usurious rates of up to 5 percent a month — an 80 percent annual rate — from loan sharks or neighborhood lending pools and then finding that their speculative investments with the money did not pay off.
But the credit squeeze is far broader. In more than a dozen recent interviews at the Canton Fair here, the country’s largest export trade fair, every business owner or sales manager described increasing difficulties in borrowing money — as well as strategies that banks and borrowers alike are using to cushion the effect of the new lending restrictions.
Some banks are requiring lenders to personally guarantee corporate loans and put up considerably more land and factory equipment as collateral. Others lend money only if borrowers agree to redeposit up to half of the loan in the same bank at a much lower interest rate. The practical effect is that the borrower pays a much higher interest rate than the official, heavily regulated interest rate for loans, usually 7 or 8 percent.
“If the bank lends you one million, they ask for 500,000 back as a deposit,” said Elaine Yan, the import and export manager at the Wuxi Zontai International Corporation, a trading company specializing in brightly colored shower curtains and bath mats. The company has decided not to borrow money at all, meeting its modest financing needs through retained profits.
Daunted by such terms, Helen Huang, the owner of a company producing chrome-plated paperweights, turned to a neighborhood lending pool last year. The $3.1 million she borrowed helped finance a $7.9 million land purchase so her company, the Shijiazhuang Harmony Import and Export Company, could build a factory.
Keith Bradsher reported from Guangzhou and Michael Wines from Beijing.
Article source: http://feeds.nytimes.com/click.phdo?i=8ddb106d5432a93ce41bba81fe0b8edb
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