* About 72 pct small firms expect no profits or losses
* Bank loans to troubled small firms in Wenzhou total 1.6
bln yuan -media
(Adds Guangzhou Daily report in last 4 paragraphs)
BEIJING Oct 11 A growing number of small
Chinese firms are in the red due to rising costs of raw
materials and labour as well as weakening overseas demand, the
Beijing Morning Post reported on Tuesday, citing a survey.
About 72 percent of companies with annual sales below 30
million yuan ($4.7 million) predicted they would post no profit
or losses in the next six months, a survey conducted by Peking
University and Chinese e-commerce giant Alibaba.com
Some 3 percent of 3,000 firms in the Pearl River Delta said
they expected to suffer huge losses or wind up their businesses,
according to the survey.
Apart from domestic policy tightening, rising competition
from countries such as India and Vietnam is also squeezing
Chinese firms' profits, it said.
Factories are running at an average 71 percent of their
capacity due to falling orders, it added.
A flurry of news about small business failures and fleeing
debt-ridden factory owners in recent weeks has aroused concern
among Chinese leaders.
During a visit to eastern Zhejiang province last week,
Chinese Premier Wen Jiabao told banks to lend more to such firms
and tolerate their high levels of bad debt, and demanded a
crackdown on high-interest informal lending to cash-strapped
His demand underscored the growing sensitivity of tight
credit controls and Chinese banks' general preference to lend to
bigger firms, especially state-owned ones.
Many small firms have been unable to borrow from banks amid
a credit clampdown by Beijing, forcing some to turn to the
underground lending market, which pools money from individuals
and firms and lends it out at annual interest rates as high as
The high informal rates, more than 15 times China's benchmark
lending rates, have pushed some firms beyond the limit,
especially in Zhejiang's Wenzhou city, a hub of private
Banking regulators in Wenzhou denied media reports that
underground lending in the city was rampant at about 800 billion
yuan, adding that banks will be little affected by recent
The Guangzhou Daily cited Zhang Yourong, head of the China
Banking Regulatory Commission's local branch, as saying that 21
banks extended total loans of 1.6 billion yuan to the city's
small firms that are experiencing difficulties with cash flow.
Even if all that went bad, non-performing loans in Wenzhou
would only amount to 3.9 billion yuan, about 0.6 percent of the
city's current outstanding loans, Zhang added.
He also denied an earlier media report that the city was
applying 60 billion yuan in one-year bailout loans from the
($1 = 6.349 yuan)
(Reporting by Langi Chiang and Kevin Yao; Editing by Jacqueline