News

Private wealth looks for new capital outlets

By Hu Yuanyuan (China Daily)
Updated: 2010-06-19 07:18

Busy street in the electrical equipment city of Liushi. There are 34 national production centers in Wenzhou that have earned the city titles like 'Shoe Capital' and 'Capital of Electrical Equipment'. Photos provided to China Daily

Often seen as a barometer, Wenzhou's private investors have been seeking out new fields after the government tightened real estate policies.

Investors are now diversifying their portfolios into stocks, coal, gold, agriculture products and private equity funds after new policies made real estate - Wenzhou's traditional capital outlet - much more risky.

"Real estate, mining and stocks are usually the top three areas for Wenzhou's private capital," said Zhang Zhenyu, director of the financial office of Wenzhou Municipal Government.

According to his research, real estate accounts for 20 percent of the collective portfolio, but as both central and local governments tighten real estate policies, Wenzhou's private capital has adopted a strong wait-and-see attitude toward the property market.

"More private capital has begun to flow into raw materials, metals mining and other wealth management products," Zhang said.

A manager from a local gold investment company said monthly sales have increased 150 percent this year.

Another indicator could be the mine owner from Cangnan, a county in Wenzhou, who has invested more than 100 million yuan to enter the hospitality trade by building a five-star hotel.

According to Zhang, Wenzhou individuals and companies have about 400 billion yuan in private capital excluding bank deposits.

By the end of the first quarter of 2010, the total assets of 324 sampled enterprises in Wenzhou had risen by 19.72 percent, or 12.6 billion yuan, compared to the same period in 2009.

Zhang said the capital needs of 324 enterprises in first quarter of this year were met through 39 percent self-financing, 33 percent by bank loans and 28 percent by private lending.

More Wenzhou enterprises have also begun to invest outside their core businesses, rising from 37 percent in 2008 to 50.3 percent in the first quarter of this year.

Statistics show that Wenzhou's outstanding bank deposits hit 560.8 billion yuan at the end of the first quarter, an increase of 8 percent from beginning of the year. The growth rate in Taishun and Yueqing reached 16 percent and 20 percent, much higher than the city's average.

"That capital, which has little interest in going into the real economy, is just waiting for better investment opportunities," said Zhang.

Government efforts

After more than 30 years of development, how to improve the safety of private capital investment in Wenzhou and ways to make it available to industries the government encourages is an important job for the Wenzhou municipal government, Zhang said.

"The government should encourage Wenzhou's private capital to flow into financial sectors and other programs of strategic importance such as the construction of railways, subways and freeways," said Zhang. "A Wenzhou private equity fund should be established to better serve the development of small and medium enterprises."

Many savvy businesspeople have scented opportunity in private equity funds and venture capital. Industry statistics show that about 30 billion yuan in Wenzhou capital is moving into equity investment through different forms.

"After the government launched a slew of measures to curb property speculation, we could hardly make handsome gains from property investment like what we did in 2007 and 2009," aid Zhang Yuming, a Wenzhou merchant. Early this year he sold off two-thirds of his properties and is now targeting private equity projects.

He said there are more than 100 Wenzhou enterprises focusing their business on venture capital and private equity, but only three have core competitiveness.

"It is really hard for Wenzhou business people to put their money into an account that they are not so familiar with, even though the venture capital is pretty famous," said Zhang.

Zhou Dewen, head of the Wenzhou SME Development Association, said if private equity funds and venture capital operations are professional and bring steady income for Wenzhou investors, they will "definitely attract private capital".

Wenzhou's municipal government is working on detailed plans to bring leading funds to the city with 6 million yuan in support and a Wenzhou Private Capital Investment Services Center that will be set up this month.

(China Daily 06/19/2010 page12)