Already frozen out by banks for working capital loans, China’s struggling small-business owners are now being turned away by a seemingly less risk-averse source: Loan sharks.
As Beijing tightens monetary policy to stem inflation, interest rates charged by black market lenders in China’s Zhejiang province have surged to 10% per month, the South China Morning Post reported Monday. The central bank’s benchmark one-year rate is currently 6.56%.
Zhejiang, a hub of the nation’s private-owned small-business sector, is known for a thriving underground banking system that provides entrepreneurs with millions of dollars in capital every year, according to the article.
Despite the added costs and risks, business owners told the Hong Kong daily they were turning to loan sharks out of desperation to prop up sagging cash flows only to be rejected, they said.
More than 7,000 companies have been forced to close in Zhejiang this year, the result of slumping sales, inflation and rising interest rates, according to the People’s Daily, Beijing’s flagship newspaper.
SMEs are really suffering but if the other report was right that some are turning to new fields then it is not bad news.