Camaraderiealwaysprevailsindifficulttimes.ThegovernmentofWenzhou,wheretheNPLratioisreportedlythehighestinChina,issuedastatementlastweek,callingforbankstosupportlocalbusinesseseventhoughtheymaynothaveenoughcollateral.Ensuringtheflowofliquidityiskey.Wearen'tsureifmeasureslikethisareenoughtoavertacrisis.Butcertainlymoretimecanbebought.
Wenzhouinitiative
Thenewinitiativecallsforbanksupportevenifthecollateralvaluehasfallenortheborrowersufferslossesfromthecollapseofcreditchainbecauseofitsroleasguarantor.
State-ownedguaranteecompaniesarecalledupontoprovideatleast30%guaranteeontheshortfallincollateralvalue.
Solongasthecorebusinessissoundandgearingreasonable.
Extraloverequired
WenzhouboaststhelargestnumberofSMEs,whichhavealwayshadproblemobtainingbankcredit.
qIt’snocoincidencethatthecityalsoboaststhelargestundergroundlendingmarket.
Despitemuchhighercost,accesstocapitalhasgottenmorechallenginginrecentyearsbecauseofdeclineinexportorderandassetvalues.
HighestNPLratio
Propertypriceshavedropped30%offthepeakin2H11.ThecityistheworsthitinChina.
Theymayfallfurther,withASPstill2xtheaverageoftier3cities,andweakdemand.
NPLratio,accordingtopressreports,stoodat4.66%asofMarch,muchhigherthanthecountryaverageof1%.
Muddlingthrough
WhileweawaitasolutionfromBeijingonhowtoaddressthecreditbubble,localgovernmentshavetoimproviseandcomeupwiththeirownplanB.
Ensuringtheflowofliquidityiskey.Attemptslikethismaynotbeenoughtoavertablowup.Buttheycancertainlybuymoretime.
Othercitiesmayhavesimilarmeasuresinplace.Unitedwestand,untilwefall.