Post by rmarks1 on Apr 15, 2014 23:30:29 GMT -5
Over 30 years ago when they partially freed their economy, they started an economic miracle. Now they are trying to "manage" the economy and they may ruin everything.
Bob
HONG KONG — Hunan Xinwei Bags Company, a manufacturer of knapsacks and handbags, is struggling to survive. The Chinese economy is slowing. Wages are rising amid a shortage of blue-collar workers. And competition from countries like Vietnam is growing.
But what has really hurt Hunan Xinwei in recent months has been a credit squeeze facing small and medium companies all over China. Exorbitant interest rates and a scarcity of loans at any rate have turned the financing of everything from raw materials to equipment into a crippling challenge for businesses and individuals without political connections to borrow at regulated rates from the state-controlled banking system.
“The current monthly interest rate that people like me are paying is around 3 percent,” compared with just 0.5 a month for regulated loans, said Yin Haibian, president of Hunan Xinwei.
The credit troubles stem from the central bank’s efforts to break the country’s addiction to the debt-fueled investments in infrastructure and real estate, part of a host of reforms underway. But the government is reining in credit at a time when concerns are mounting about the health of the economy, putting Beijing in a difficult position.
The latest growth figures released on Wednesday showed that the gross domestic product in the first quarter was up 7.4 percent from a year earlier — marginally below the government’s annual target of 7.5 percent. But much of that growth actually took place in the second, third and fourth quarters of last year.
As growth wanes, the credit problems affecting companies like Hunan Xinwei — and other short-term economic stresses — will test China’s commitment to long-term reforms. If the short-term costs are too high, the government may yet retreat to the time-tested approach of ever greater investments in infrastructure and real estate.
“The underlying economic situation is distorted. They need economic reform,” said Tao Wang, a China economist at UBS.
A welter of statistics in recent weeks has prompted worries that China, the largest single contributor to global economic growth, may finally be facing a broad, long-term slowdown.
www.nytimes.com/2014/04/16/business/international/as-credit-dries-up-smaller-companies-in-china-feel-the-pinch.html?hpw&rref=business&_r=0
But what has really hurt Hunan Xinwei in recent months has been a credit squeeze facing small and medium companies all over China. Exorbitant interest rates and a scarcity of loans at any rate have turned the financing of everything from raw materials to equipment into a crippling challenge for businesses and individuals without political connections to borrow at regulated rates from the state-controlled banking system.
“The current monthly interest rate that people like me are paying is around 3 percent,” compared with just 0.5 a month for regulated loans, said Yin Haibian, president of Hunan Xinwei.
The credit troubles stem from the central bank’s efforts to break the country’s addiction to the debt-fueled investments in infrastructure and real estate, part of a host of reforms underway. But the government is reining in credit at a time when concerns are mounting about the health of the economy, putting Beijing in a difficult position.
The latest growth figures released on Wednesday showed that the gross domestic product in the first quarter was up 7.4 percent from a year earlier — marginally below the government’s annual target of 7.5 percent. But much of that growth actually took place in the second, third and fourth quarters of last year.
As growth wanes, the credit problems affecting companies like Hunan Xinwei — and other short-term economic stresses — will test China’s commitment to long-term reforms. If the short-term costs are too high, the government may yet retreat to the time-tested approach of ever greater investments in infrastructure and real estate.
“The underlying economic situation is distorted. They need economic reform,” said Tao Wang, a China economist at UBS.
A welter of statistics in recent weeks has prompted worries that China, the largest single contributor to global economic growth, may finally be facing a broad, long-term slowdown.
www.nytimes.com/2014/04/16/business/international/as-credit-dries-up-smaller-companies-in-china-feel-the-pinch.html?hpw&rref=business&_r=0
Bob