Coronavirus may bankrupt some Chinese businesses

As orders from Europe and the Middle East dried up due to the coronavirus, Ye Zhenqing knew that he would have to take drastic measures to prevent his sunglasses manufacturing business from going under. With corporate loans out of reach, Ye pledged his own apartment as collateral for a 2 million yuan personal loan to help his business.

“I am extremely short of money right now. It is difficult to apply for a bank loan," said Ye, the founder and CEO of Wenzhou Zhen Qing Eyewear, in the eastern city of Wenzhou. Special low-interest business loans have been introduced to help companies cope with the consequences of the coronavirusBut "they don't apply to us," Ye said, adding that small companies like his have to put up huge amounts of collateral and pay higher interest rates than big companies.

As more business owners like Ye are forced to compromise their homes to stay afloat, the ramifications for the broader economy could be severe.

Small unbanked businesses form the backbone of the Chinese economy and are taking a serious hit from the outbreak of coronavirus: 85% of 1,506 SMEs surveyed in early February expect to run out of cash within three months, according to a report by Tsinghua University and Peking University.

The 2 million yuan loan is enough to cover operating expenses and the salaries of about 100 workers for just two months, after which it will need new funds or the return of orders.

He coronavirus, which has infected more than 78,000 people and killed 2,700 in China, has already shut down large sectors of the economy. A wave of SME closures or layoffs would deal a further blow to President Xi Jinping's efforts to stimulate growth, which economists now expect to fall to just 3% in the first quarter.

Beijing has recognized the cash crunch facing small businesses and has deployed vast financial resources to deal with it.

Earlier this week, the People's Bank of China earmarked 500 billion yuan in fresh financing to provide cheap loans to smaller businesses struggling to resume operations amid the coronavirus outbreak. coronavirus. This is in addition to the 300 billion yuan re-lending quota authorized this month by the central bank.

Read More: Economic impacts resulting from the coronavirus

"If the support quotas are not enough, we will increase them further," Liu Guoqiang, deputy governor of the PBOC, said at a press conference on Thursday.

But these programs aren't reaching the businesses that need them, according to Zhang Qinghua, who works at a Guangzhou-based financial services company and helps small businesses apply for loans.

“There is a huge demand for loans right now, as most of the small and medium-sized businesses will face cash flight within three months,” he said. “Most companies are undecided about whether or not to continue, whether it is worth taking loans. Some business owners have already chosen to liquidate their business."