Chinese Small Businesses Struggle With Heavy Debts

October 14 00:00 2011

New York, October 14 ( – Shocking news of the average Chinese entrepreneur running helter-skelter because of being saddled with heavy debts has been surfacing in the media in the past few days. Many Chinese entrepreneurs have fled the city while some have tried to commit suicide. This is largely because of being unable to pay back the business loans with interest to the lenders.

The market for funds in China is a little different. Almost all state owned banks will finance state owned corporations or other mega corporations. The average small business has absolutely no way to receive funds to grow their business as a part of the government banking policy. This drives many businessmen in the hands of unscrupulous loan sharks who charge approximately 70% per annum on loans! Chinese businessmen were able to pay until recently. However, the economic slowdown has affected their export driven economy causing colossal losses to many entrepreneurs.

On the other hand, many large corporations have been known to take full advantage of this rule. They borrow from banks funds they don’t need at nominal rates of interest and then pass it on the money-lenders who lend it to the small businessmen and make exorbitant profits.

The market for such loans is huge. It represents 10% of Chinese GDP. Moreover, there is large scale involvement of the Mafia.