Thu, Nov 29, 2007 - Page 12 News List

Taiwan's SMEs face loan squeeze

By Joyce Huang  /  STAFF REPORTER

Taiwanese small and medium enterprises (SME) operating in China were feeling the pinch even before Chinese authorities ordered several banks to freeze new loans in the fourth quarter, China-based business leaders said yesterday.

"Export-oriented Taiwanese businesses with a lackluster performance experienced a credit crunch early in the second half of the year," Tony Cheng (鄭榮文), former chairman of the Taiwan Merchant Association in Shenzhen (深圳台商協會), told the Taipei Times by telephone yesterday.

"Highly leveraged businesses will soon suffer from a liquidity problem as [Chinese] banks further tighten lending," Stanley Hsu (許俊達), chairman of the Taiwan Merchant Association in Fuzhou (福州台商協會), said in another telephone interview.

Two-thirds of 60,000 companies doing business in China are SMEs, Hsu said.

loan suspension

The China Banking Regulatory Commission has ordered three state-run banks and four commercial banks to refrain from granting new loans in the fourth quarter to stop the economy from overheating, the Commercial Times quoted a Chinese magazine as reporting yesterday.

The three state-run Chinese banks were China Development Bank (國家開發銀行), Agricultural Development Bank of China (中國農業發展銀行) and the Export-Import Bank of China (中國進出口銀行), while the four commercial banks were the Agricultural Bank of China (農業銀行), China Everbright Bank (光大銀行), Shenzhen Development Bank (深圳發展銀行) and Guangdong Development Bank (廣東發展銀行), the report said.

Some of the Chinese banks had also exceeded a government-imposed 15 percent cap on lending and were therefore expected to withdraw billions of yuan in loans to businesses, the report said.

Businesses that are short on capital may even face the prospect of closure early next year, the report quoted China-based businessman Cheng Feng-yuan (程豐員) as saying.

Tony Cheng and Hsu said that credit tightening was inevitable as the Chinese government sought to rein in the economy after a loose credit market drove borrowers in search of higher returns, driving up stock and property prices in the process.

However, the move is unlikely to affect loans to listed multinational companies as they're too big to fail, said Hsu, who runs a US$30 million business in China.

contingency measure

Hsu said he had not felt pressure from Chinese banks over his 5 million yuan (US$676,800) loan, but some SMEs in China may have to raise capital from Hong Kong banks or Taiwanese banks' offshore banking units as a contingency measure.

Cheng said that Shenzhen business members were unlikely to be affected by the credit tightening, as the majority are accustomed to the difficulty of obtaining credit from Chinese banks and, as such, own as much as 80 percent of their capital.

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