At least one entrepreneur has killed himself and dozens of others are on the run in China after borrowing money from private lenders at very high interest rates, state media reported Thursday.
The private business owners were based in the eastern city of Wenzhou, which gained nationwide fame in the 1980s for its free-wheeling entrepreneurs and factories specialising in everything from cigarette lighters to badges.
A shoe factory owner facing "debt problems" jumped to his death on Tuesday and another 29 have fled the wealthy city since April after borrowing money at exorbitant rates, the 21st Century Business Herald said.
The entrepreneurs owned factories, restaurants and printing businesses. One of them owes two billion yuan ($312 million), the report said.
China's banks — which are not allowed to charge higher interest on riskier loans — mainly lend to other large state-controlled enterprises and shun small- and medium-sized enterprises.
So a growing number of independent business owners in China are resorting to the informal lending market where they pay as much as 70 percent interest on loans.
Tighter lending restrictions were also exacerbating the problem, Credit Suisse said this week, estimating that the informal lending market could be worth four trillion yuan and growing 50 percent year-on-year.
Credit Suisse said the surge in private lending over the past 12 months "threatened financial stability" in China.
Unless local authorities make it easier for private businesses to get loans and cut taxes, 40 percent will close by early next year, the Wenzhou Small and Medium-sized Enterprise Development Association was quoted as saying.
