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China’s Wenzhou Sets Up 1 Billion Yuan Emergency Fund for Firms

China’s eastern Wenzhou city set up a 1 billion yuan ($158 million) fund to provide companies with emergency financing after dozens of businessmen fled or declared bankruptcy because of debts.

The fund, set up by the local government at the end of October, will “in principle” offer loans of as much as 20 million yuan for as long as 10 days, the official Xinhua News Agency reported yesterday, without saying where it got the information. Companies must show they have an “outstanding” core business, normal operations, assets greater than their debts and cash flow difficulties, according to the report.

Lending limits instituted by the central government to fight inflation have also reduced financing available to smaller companies. Higher rates charged by non-bank lenders have contributed to business closures in Wenzhou, a hub for small exporters, and spurred concerns that difficulties will spread beyond the city.

“This should offer some help to the small businesses in the city,” said Yao Wei, a Hong Kong-based economist at Societe Generale AG. “This is part of the broad support package the government announced last month.”

More than 80 businessmen in Wenzhou have disappeared, committed suicide or declared bankruptcy to avoid repaying debts to informal lenders since April, Xinhua reported at the end of September. Premier Wen Jiabao visited the city last month and pledged to aid small businesses. Since then, the central government has unveiled measures including tax breaks and financial support for smaller companies.

In principle, the upper limit for an emergency loan is 20 million yuan, according to the Xinhua report.

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