A light word in the temple is the long life of countless ordinary people below.
How should we measure the fate and lives of a generation, or even several generations? Some have stepped out, while more people, along with their children, have been swept into the torrent of history, rolling away. When looking back at history, perhaps we should slightly cast aside the obsession with "higher, bigger, stronger" and try to survive from an ordinary perspective. GDP is a number, change is the transition of people and things, the continuously declining economic growth rate, the aging population arriving early due to the family planning policy, and the large-scale relocation of industries caused by labor costs... For the policymakers, looking back at history is also a record of history itself. "Overcapacity," "supply-side reform," "transformation and upgrading," these seemingly lofty and empty terms only become meaningful when they land in the mundane, happen around us, and concern our friends and family. What are the economic laws of industrial development?
"Overcapacity" is one way of recession. "Supply-side reform" and "transformation and upgrading" are the keys to extending the industrial lifecycle.
Zhejiang is most famous for its small and medium-sized enterprises and industrial clusters; almost every small place has its own golden signboard: by 2005, the sock industry in Zhuji, small commodities in Yiwu, buttons in Yongjia, and ties in Shengzhou each accounted for 65%, 70%, 85%, and 90% of the national market share, respectively, while Wenzhou lighters accounted for over 80% of the global market share. There are also hardware in Yongkang, light textiles and chemical fibers in Shaoxing, leather and clothing in Haining, and fine chemicals in Taizhou... For the people of Zhejiang, "industrial clusters" and "block economies" are not illusory terms but tangible benefits. My hometown is located at the intersection of the eastern Zhejiang basin mountains and the northern Zhejiang plain, with little arable land, no port, and relatively scarce natural resources. After the 1980s, the plastic mold industry in our area gradually became an industrial cluster. From 2005 to the present, the plastic sales in my hometown have long accounted for over 10% of the national total; in 2015, the plastic trading volume was about 10% of the national total, with the plastic industry sales accounting for about 7%. Although most people may know little about my hometown, its name is well-known in the plastic mold industry. Since 1999, the China Plastic Expo has been held in our county for 17 sessions. Each time, the scene is bustling, and it is hard to find a booth for exhibition and sales. During the expo, several five-star hotels in the city need to be booked more than a month in advance and do not offer discounts.
Like most private manufacturing industries in China, the enterprises in Zhejiang's industrial clusters are mainly labor-intensive, highly specialized, and characterized by a large number of small-scale operations. As a result, there are naturally many "bosses." Friends' parents who own factories or have real businesses, regardless of size, are respectfully referred to as "bosses" when they go out.
With so many bosses, their next generation is naturally seen as "rich second generation." Even in their innocent childhood, friends could vaguely understand who among their peers had wealthy parents based on some naive comparisons. At that time, the Korean drama "The Heirs" starring Lee Min-ho had not yet become a nationwide sensation, but those little "heirs" around us somewhat understood their identity and position in the family business.
Later, I left my hometown to study at Peking University, pursuing my undergraduate and doctoral degrees, foolishly running on the path of the "golden leftover warrior." The lives of my childhood friends continued smoothly according to the script of the "rich second generation." Until 2013, a stone called "mutual guarantee" began to stir up waves in my hometown.
A, a girl of my age, was my childhood playmate. She is beautiful and comes from a wealthy family. Her parents started producing plastic products and sanitary ware since 1995. Although starting a business was difficult, after nearly 20 years of hard work, they managed to run their two factories successfully, with profits exceeding ten million during good years. In 2013, when we graduated from undergraduate studies, I struggled through a "hardship" doctoral life, while she began preparing to take over the family business in the office. While many peers were still considering how to scrape together a down payment for a house after graduation, her parents had already early on secured a villa in a good urban location under her name. The family business was thriving, her parents were still in their prime, and she could gradually learn the business and management, leading a well-organized life as an heir.
However, in 2013, the guarantee crisis that began to ferment in Wenzhou started to spread throughout Zhejiang Province, affecting my hometown as well. Debt spread rapidly through the mutual guarantee network of small and medium-sized enterprises in the province like a contagious virus, and business closures in Zhejiang evolved into a terrifying epidemic, even the originally strong and well-managed enterprises were on the brink of collapse under the sudden "leverage" pressure.
A's parents, due to their good relationships and solid business foundations, were seen as the best guarantee candidates by the local bank president. Unable to resist the president's persuasion and the requests of friends and family, A's parents successively guaranteed over ten enterprises, with a guarantee amount close to 100 million yuan, thus becoming deeply entangled in the guarantee circle. In 2014, A's cousin's business and her uncle's business successively faced risks, and one domino after another fell, plunging A's family business into a huge debt crisis. During that time, A's parents faced a barrage of bank presidents and loan officers demanding repayment, pressuring, and threatening them daily. A's father, who originally had a mild smoking habit, began to smoke two packs a day, his hand shaking from time to time while holding a cigarette. In 2015, the property under A's name was auctioned by the court to pay off debts, but it was still a drop in the bucket.
Seeing the building about to collapse and unwilling to let years of hard work go to waste, A's parents, like many entrepreneurs, came up with the idea of starting anew: registering a new company and secretly transferring some assets and business to the new company, waiting for the old company to naturally cease operations and then resurrecting it. This approach is essentially no different from evading debts; it sounds easy but is very risky in practice. Moreover, the new company and the old company are intricately linked, and even if it gets back on track later, it cannot escape the stain of credit, so whose name to register the new company becomes crucial.
A's parents, unable to bear the guarantee responsibilities, ended up on the court's blacklist. In desperation, they wanted to use A's name to establish a new company, but A was unwilling to bear such a huge credit risk at the beginning of her life. After much consideration, she still refused. Fortunately, her parents understood. In the end, A's father brought in his elderly father and registered the company under the old man's name. Although they temporarily escaped the fate of liquidation, with the overall economic situation deteriorating, the new company's business declined significantly compared to before. After a year of ups and downs, A finally decided to leave the family business and, with her parents' financial support, opened a small Japanese restaurant. The last time we met was in her restaurant, where she and her boyfriend were busy mopping the floor and wiping tables in uniforms, preparing meticulously for the upcoming dining peak, with a "Meituan Takeout" poster hanging in the display window at the entrance.
The story of the small town speaks of the disappearance of the "heirs." Similar stories are played out every day in Zhejiang.
But even commercial banks are quite "aloof" when facing small and medium-sized enterprises that are small in scale and lack strength. Banks that "discriminate against the poor and favor the rich" prefer state-owned large enterprises with high credit ratings, ample assets, and good operating efficiency, while being quite "stingy" towards small and medium-sized enterprises. Due to the small scale, weak strength, and poor information disclosure capabilities of small and medium-sized enterprises, banks have high requirements for collateral and external guarantees when granting loans. However, small and medium-sized enterprises are already thin on the ground, and many assets lack ownership certificates. Additionally, banks often evaluate collateral at a discount of 30% or even lower, making them even more constrained. In desperation, external guarantees became the last straw. To protect their own interests, enterprises would also require the external enterprises to guarantee for them when providing guarantees, thus forming a mutual guarantee system.
In the process of gradual development, the funding guarantee chain of Zhejiang enterprises presents three forms of connections: "line, ring, and network."
The so-called "line" refers to the mutual guarantee between paired enterprises mentioned earlier; "ring" refers to numerous enterprises jointly forming funding guarantee groups; "network" refers to mutual funding guarantees among group enterprises and between subsidiaries within group enterprises, including mutual guarantees between parent companies and subsidiaries, among subsidiaries, and among parent companies, creating a very complex relationship.
Small and medium-sized enterprises are generally entangled in the "line, ring, and network" guarantee network. The same enterprise is likely to be involved in different levels of guarantees, ultimately leading to a layering of leverage, binding quality enterprises with poor enterprises together, where pulling one thread can affect the whole fabric.
During periods of economic upturn, the hidden debt risks of the guarantee chain are masked by prosperity, and the credit environment is more lenient for small and medium-sized enterprises, making mutual guarantees and joint guarantees a win-win cooperation model for multiple parties. Once the economy declines, risks are easily exposed.
The first to fall in the crisis was Wenzhou, where private finance was most active.
In the second half of 2010, the policy-driven "de-leveraging" began: the central bank raised the reserve requirement ratio 27 times in a row, tightening credit; real estate regulations were also tightened layer by layer, with purchase restrictions following closely. The first bubble to burst was in the real estate market, where the decline in housing and land prices increased the debt burden on enterprises, leading to a vicious cycle: when enterprises could no longer bear the heavy debt burden, selling properties and quickly recovering funds became the first choice; however, once concentrated selling occurred, property and land prices would further decline. Banks also took the opportunity to "kick someone when they're down," not only adjusting the "borrow new to pay old" policy to "pay off before lending," but also withdrawing and tightening loans. Even after enterprises paid off their debts, banks refused to issue new loans, leading to a break in the enterprises' cash flow and operational difficulties. Even if banks agreed to issue new loans, the review process often dragged on, and the credit conditions changed repeatedly. To meet temporary funding needs, enterprises had to turn to high-interest private lending, increasing their operational costs and risks.
Before the collapse of private lending in Wenzhou in 2011, the banks' aggressive withdrawal of loans exacerbated the crisis. Subsequently, the cycle of "real estate value shrinkage - collateral value shrinkage - bank loan withdrawal - indebted enterprises becoming insolvent - debt spreading through the guarantee chain - property sale value further shrinking" began to unfold in various third- and fourth-tier cities in Zhejiang.
Under the pressure of the guarantee crisis and the high leverage caused by the guarantee network, the older generation of small and medium-sized enterprise owners in Zhejiang faced immense pressure, exhausting their lifelong knowledge and skills, each displaying their talents to turn passive de-leveraging into active efforts, honing their "asset relocation" skills, and starting a prolonged "asset defense war"—this is an unsavory yet unavoidable part of the story, and it is also a footnote to the high non-performing loan rate and the highest non-performing loan balance in Zhejiang Province in 2014. The previously mentioned secretive asset transfers and resurrection strategies are merely representative of the thirty-six strategies employed by business owners. Besides registering companies in the names of parents, children, or even relatives and acting as the actual controllers, business owners sometimes also bring in trustworthy third parties to temporarily take charge, planning to revamp the business once the storm has passed. Additionally, in the asset defense war, there are also tactics like malicious leasing, such as signing long-term lease agreements with nominal "third parties" in advance, making it impossible for assets to be auctioned normally during liquidation, thereby effectively retaining the right to use the assets; or fabricating debts, causing harm to other creditors' interests; or engaging in asset buybacks at low prices during court auctions, significantly reducing debts—because the third auction price can often drop to as low as 55% of the assessed value. When all else fails, some choose to flee, leading to a non-performing loan rate and a non-performing loan balance that stands out nationally (not counting the massive amounts of written-off loans). Thus, business owners have given us a vivid lesson in "de-leveraging" through their personal experiences and actions.
"De-leveraging" aims to eliminate low-end capacity that is small and scattered, to remove traditional growth momentum, while retaining the "market gene" and "entrepreneurial human capital" of the people of Zhejiang, and strengthening the spirit of entrepreneurship and innovation. Only those who have endured the hardships and trials can truly understand.
The key to "de-leveraging" lies in whether quality enterprises that still have vitality but are damaged by guarantees have the opportunity to step out of the shadows and start anew; it depends on whether, after "de-leveraging," it is possible to quickly revitalize the non-performing assets, allowing them to play a greater role in quality new enterprises.
All calm is the prelude to the storm#
It also depends on whether, after the storm, the human capital of quality entrepreneurs can effectively combine with quality assets to break through the market barriers. Behind the unsavory asset transfers is the struggle of the real economy in Zhejiang to revive after a sharp decline due to excessive credit expansion. The traditional manufacturing industry, which is shaky, is gradually declining, behind which are the joys and sorrows of countless families.
Countless individuals like A, B, C, and D, who are knowledgeable, capable, and courageous "post-85s" and "post-90s," face the precarious family businesses against the backdrop of "de-leveraging." They choose to shed the halo of heirs, carry their parents' "market genes," don the armor of entrepreneurs, leave their parents' battlefield, recruit their own partners across the country, and venture into restaurants and coffee shops in business circles, into narrow office desks in office buildings, into the internet, or embark on the e-commerce path guided by Alibaba, embracing capital.
Leaving the currently high-profit traditional garment industry, they begin to struggle in emerging industries such as internet advertising, social networks, gaming, and e-commerce. On the entrepreneurial path, these young people, who grew up in privilege, have encountered various difficulties and challenges: being deceived, being blocked by debt collection companies in their offices, disbanding technical teams, and living in a small office space... Fortunately, they have all persevered and are now beginning to enter a virtuous cycle. The following is what Jiayi said:
Industrial upgrading happens at this moment, in the subtle transition between the persistence of the older generation and the collective departure of the heirs, occurring within families across generations... Countless he, she, and they choose to shed the halo of heirs, carry their parents' "market genes," don the armor of entrepreneurs, leave their parents' battlefield, and venture into business circles, into narrow computer desks in office buildings, into the internet...