The Research Of Wenzhou Municipal Government’s Practice In Solving Regional Guarantee-chain Loan Risks

As the global economy goes gloomy, China’s economy growth is now experiencing a shift down, leaving numerous manufacturers in deteriorating business condition, especially for those industries which are energy-intensive, highly polluting or saddled with overcapacity. Many companies who got loans easily through mutual guarantee during loosen monetary policy period, is now encountering life and death struggle because of order cutting, labor shortage, cost rising and assets depreciation. Even worse, due to credit fuelled and mutual guarantee loans in the past years, single company’s risk now spreads along borrowing relation, supply chain and guarantee chain, causing more companies shut down, entrepreneurs flee away, legal dispute, bank non-performance loan(NPL) rising and social security threats, finally a regional financial crisis happens. This case is quite now common in Eastern China, among which Wenzhou is in a more severe situation. Wenzhou used to be outstanding in banking industry, but now is notorious for high rising NPL ratio, huge losses and intractable guarantee problems. Under such case that regional financial stability cannot be achieved by individual effort, the government is spontaneously expected to help.Actually there is no lack of practice of China’s government in neither rescuing problem banks nor solving economic crisis. But with difference from central government, local government or municipal government has limited resource and policy, as well as there is limited reference for municipal government in solving guarantee-chain loan problems. Since Wenzhou is the first city in China facing guarantee-chain loan problems and has taken actions for several years, the study of Wenzhou municipal government’s behavior and practice is quite meaningful, some experience and useful lessons can be copied in others cities.This paper will be divided into several parts: the first chapter will give an introduction of the study and talk about research method to be adopted, and then go through a brief introduction of theory, namely theory of public administration, macro and micro economy, public finance, moral hazard, policy choice of government intervention and etc. The second chapter will give definition of the concepts related to guarantee-chain loan risk and introduce risk management theory. Then chapter three will introduce the current situation of guarantee-chain loan risk in Wenzhou. For chapter four, we will discuss the efforts Wenzhou local has taken to help companies and solving NPL, supported by three kinds of pattern and relative examples. Chapter five will deals with the problems, difficulties, challenges that local government faced with. In chapter six, we will offer advice for further improvement. As for the last chapter, we come to a conclusion.Throughput the whole article, we prove that with faster action and feasible plans, economy can overcome problem more quickly. Also we realize that there are still many short comes and challenges, rescue plans might not work as initially proposed, we believe local government should take a long-term perspective,coordinate the interest of all parties and unite as one, work hard in solving regional financial risks.