One of my responsibilities at work is to write a report on a different Chinese province each month. This month I tackled Zhejiang and came across the “Zhejiang model of development”.
The Zhejiang model refers to the way private business developed in Zhejiang — mostly as small operations that were set up to meet a need in either the domestic or international market for mass-produced goods. These businesses are usually supported by a heavy government investment in public infrastructure. However, these business tend to use a lot of resources, cause a lot of pollution and are inefficient, so there is a fear from many economists that these businesses will collapse or suffer significantly once the next major competitor comes along
either from inside or from outside China.
When I was writing the conclusion to the report, I was trying to think of ways to suggest ways to prevent the failure of small businesses in Zhejiang from happening and it brought my mind back to a business trip I took earlier this month to Tianjin. There I attended the China International Private Equity Forum.
During the three days I was there I kept heard the samething over and over again: Chinese businesses lack capital. It turns out the only real way open for them to get injections of capital is bank loans and those are difficult to get because banks are geared towards supplying state-owned companies not small businesses. This has meant that many small firms may have taken an illegal route to get capital in the past. Well thanks to comments made by Deputy Central Bank Governor Wu Xiaoling. It looks like it will be easier for private equity firms to inject money into promising small and medium-sized businesses in China. This should hopefully some companies navigate the pitfalls of growing their firms.
Update: It looks like I spoke too soon.