200 bosses flee their creditors in Zhejiang

PUBLISHED : Wednesday, 12 October, 2011, 12:00am
UPDATED : Wednesday, 12 October, 2011, 12:00am


More than 200 business owners in Zhejiang, the mainland's cradle of entrepreneurship, fled or went into hiding in the first nine months of this year after their flow of capital dried up, an official report says.

The 228 companies, mostly small and medium-sized enterprises (SMEs), were found to owe about 76 million yuan (HK$93 million) in wages to nearly 15,000 workers, the Oriental Morning Post reported yesterday, citing a report by Zhejiang authorities.

By comparison, the number of workers who failed to get their wages because their bosses fled during the 2008 financial crisis was just 5,000 to 6,000, an unnamed official from the province was quoted as saying.

Zhou Dewen, who chairs the association for SME development in Wenzhou, the province's best-known centre of entrepreneurship, expects the situation will only worsen in coming months.

'Before the Lunar New Year, there will still be many companies suffering from closures or fleeing bosses. The end of the year is usually the prime time for SME owners to hide from paying wages,' he said.

The reasons for so many fleeing bosses, the report said, were a lack of capital because of the tightening up on bank lending, mounting debt owed to private creditors, mismanagement and blind credit guarantees.

'The central bank has raised the required deposit reserve ratio several times. The first reaction of banks was to reduce loans to SMEs. The SMEs then turned to private creditors, but their high interest rates became an unbearable burden, leading them directly to bankruptcy,' the report said.

Of the 228 cases in the province, 84 happened in Wenzhou, where private lenders are most active.

'SMEs are facing shrinking profits because of a stronger yuan, reduced orders from abroad and higher costs for new equipment required to reduce pollution,' Zhou said.

National attention was focused on the problem last month when Hu Fulin, president of China's biggest spectacle maker, fled Wenzhou for the United States, leaving 1.5 billion yuan in debts. He was persuaded to return to the city this week.

Rumours then circulated that the Wenzhou government had requested the provincial government ask for a 60 billion yuan loan from the central bank to stabilise the local financial market. There were also suggestions that 89 per cent of individuals or families in the city were involved in providing private loans.

However, Wenzhou's banking regulatory bureau said it had not heard of the request for the loan, while the central bank's Wenzhou branch said the 89 per cent figure was taken from a survey of 300 families that were involved in providing private credit, the Guangzhou Daily reported yesterday.

Zhejiang's labour authority has launched an investigation of SMEs suspected of owing wages, and whose owners might flee, to prevent the situation from worsening, the Oriental Morning Post reported.

The paper cited an unnamed source as saying that the provincial government helped companies pay over 40 million yuan to their workers who failed to get wages from January to September. In previous years, the amount paid out for a whole year was about 10 million yuan.


The number of SMEs that went bust in Zhejiang in the first half of this year due to soaring production costs and monetary policy tightening