For years, the town has been known for its ambitious entrepreneurs. In 1979, the Chinese government granted Zhang Huamei a business license, making her China’s first, post-Cultural Revolution government-approved entrepreneur. She quickly became rich by using cheap labor to manufacture buttons and is known in some circles as “Capitalist Number One.” Others followed her lead, quickly amassing their own fortunes.
Many Wenzhou business people then took their excess cash to the real estate market. They bought up entire floors, and sometimes blocks, of new high-rises in China's cities. In search of even higher returns, some of them turned into unregulated money lenders to other real estate investors. For a while, this system worked beautifully for the Wenzhou business class: Ever-rising skylines produced ever-rising income. But housing prices soared, and Wenzhou's entrepreneurs were among the culprits China's urban residents blamed for the inflation.
Few problems unnerve the Communist Party more than inflation. In January 2010, Beijing ordered its banks to restrict access to credit. Easy credit had allowed people in Wenzhou, and their like-minded investors across China, to finance their inflation-inducing real estate buying binges. But as Beijing tightened credit, private companies and local government officials in Wenzhou bucked the orders of the party and Central Bank and began to lend money to newly cash-strapped Wenzhou entrepreneurs at usurious rates that, reportedly, ran as high as 140 percent per annum.
In other words, some of Wenzhou’s business people and government officials began moonlighting as loan sharks.
In late September, a large numbers of Wenzhou entrepreneurs either went into hiding or fled China entirely. What did they fear? According to news reports, they feared the employees and suppliers they could no longer pay -- and their loan shark creditors.
On Oct. 5, sensing a financial and social crisis, Premier Wen Jiabao visited Wenzhou and promised state-administered loans for small and medium-sized businesses struggling to obtain financing in the wake of the national credit tightening. But the Chinese public perceived this to be an official state bailout just for Wenzhou, a city filled with corrupt and irresponsible businesses and civil servants.
To many in the Chinese public, this event symbolized a systemic government failure and a major shortcoming in Chinese society. It inspired China's microbloggers to stop tweeting about movies, pop stars and online games and express their strong populist reaction to the ever-increasing bailout of corrupt companies.
At times, Chinese microbloggers' reactions echoed populist U.S. reaction to the Wall Street bailouts.
“Socialism has advantages,” wrote a microblogger named Shi Bo, on the Sina Weibo microblog. “When businessmen take speculative losses, all the people will pay for them.”
But businessmen, financial commentators and economic analysts have also expressed varying degrees of disgust with the bailouts. Ma Guangyuan, a well-known financial commentator tweeted on Sina:
Who has turned our economy into one full of speculation and real estate? Who has made the whole society into a pyramid scheme which only pursues short-term quick profits …? Do you think it's right to fasten all the blame on the Wenzhou entrepreneur?
It wasn’t only Wenzhou people who got rich and turned to real estate; others, in other parts of the country, did, too. Speculation is just a surface phenomenon which reflects the lack of investment opportunity and the increasing difficulties of doing business in the real economy.
Chinese mainstream media commentators have detected similarities between American and Chinese populist frustration over financial bailouts. And many of them fear that financial disruption will lead to social disruption. Thus, China's financial media have taken a serious interest in the current Occupy Wall Street movement in the U.S., and some see lessons to be learned.
On Oct. 10, Yu Fenghui explicitly listed those lessons in the National Business Daily. He wrote:
We must contain the expending trend of the polarization of rich and poor; we should … pay special attention to the salaries of financial executives … If the salaries of financial executives maintain a long-term high rate without sufficient reason, public dissatisfaction will inevitably be raised.
Few state media pundits, however, have had the courage to hold party corruption responsible for the Wenzhou crisis. Shen Bin is a lone stand-out in this regard. He wrote in Shanghai’s popular Oriental Morning Post:
On one side, so many criminals have gotten involved in money lending; on the other, civil servants with public trusts were deeply entangled in it. For example, in the instance of Mr. Zhou mentioned above, in which creditors worked in local judicial organs, can we trust the fairness of police in dealing with the case? Take the case of Shi Xiaojie [a Wenzhou entrepreneur with credit issues]… eighty percent of his creditors were civil servants …
Shen’s solution, as outlined in the editorial, was simple: Start enforcing regulations that would prevent local government officials from moonlighting as street corner bankers. But he didn't express much confidence in the likelihood of reform.
There’s considerable speculation in the Chinese press that the Wenzhou credit crisis is just the beginning of a U.S.-style credit meltdown that will spread throughout China. Xiao Yong, a writer with Hubei Daily, a state-owned paper in Wuhan, actually suggested parallels to 1930s America in an Oct. 11 editorial:
It's the same runaway economy and Wall Street greed that created the long winter night of the ‘Great Depression.’ If the problem that’s broken out in Wenzhou cannot be handled properly, it will become the most serious danger for the Chinese economy.
Xiao reminded readers that “it’s only getting worse” and listed additional provinces to which the Wenzhou-style credit crisis has expanded: Jiangsu, Fujian, Henan and Inner Mongolia.
A Sina microblogger with the handle _samuel, echoed this sense of impending doom caused by Wenzhou with this pithy observation:
The essence of the global crisis at present is this: The U.S. can't afford the greed of Wall Street, Germany can't afford the sloth of Europe, and China can't afford the corruption and degeneration of government.
Few populists, in the U.S. or China, would disagree.
(Adam Minter is the Shanghai correspondent for the World View blog. The opinions expressed are his own.)
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Adam Minter at firstname.lastname@example.org