When a brother in China calls to ask for money...

The New York Times,

By JOE ZHANG, Dec. 1, 2000

It was past midnight when my telephone rang. It was Hua-Liang, my brother who lives in Jing-Men, a small city in Hubei Province in central China.

"Do you have 1 million renminbi (about $120,000) to spare?" he asked. "Why?" I queried. "I am planning a takeover bid for a state-owned factory," he replied.

The factory that Hua-Liang referred to is the city's largest producer of vegetable oil. It was a cash cow for the city government for many years.

But in the past five years it has been losing a lot of money, putting much strain on the already shrinking local treasury. So, the local government has finally decided to privatize the factory.

I was shocked, not only by the demise of the plant but also by Hua-Liang's revelation that this factory and many other big debtors had just cost him a much cherished job as a banker.

Hua-Liang joined the city's largest credit union, Golden Shrimp Credit Union, in 1987 after years of unemployment. In 10 years, he rose through the ranks to become the second-in-command. His was an envied job, well paid and most respected.

But in the past few years he lived a miserable life as company after company defaulted on their loans. The main reason: Prices of property and manufactured goods have been steadily falling. Companies had borrowed money on the assumption of stable or even rising prices for their products.

Besides the defaults, Golden Shrimp's deposit base eroded in recent years. As competition heated up, other banks set up branch offices at just about every street corner. Golden Shrimp expanded as well, even into outlying suburbs. In one branch where Hua-Liang used to work, there were days when the branch did not record a single transaction.

Golden Shrimp eventually slid into a "liquidity crisis" — it could not repay its depositors. For about three years, Hua-Liang's daily job was to beg corporate borrowers to repay their loans and raise short-term funds from banks to repay disgruntled depositors.

Sometimes he had to approach the local office of the central bank to plead for financial support, but everytime he would receive a harsh lecture.

Poor Hua-Liang, he had finally had enough and quit his job. My parents, too, were very stressed out. They wept on the phone, knowing that it would be nearly impossible for him to find another job. Thousands of workers have been made redundant in that small city in the past year alone. My nephew has been out of work for two years since his graduation from a local technical college.

Hua-Liang told me about the vegetable oil factory he wanted to acquire. The local economy was sluggish. As a result, the factory's workers and well-connected officials in the city have squeezed hundreds of their grown-up sons and daughters into the plant, which is considered safe and stable. In the last five years the factory's payroll rose fourfold, but demand was flat and output stayed almost flat.

"How do you plan to make money out of this factory?" I asked Hua-Liang. "The company has excessive debts at present," he said. "I want to bid for its entire ownership, and ask the government or the court to forgive the entire debt. I then have to slash the work force to just 100. Within two years, it should become profitable."

Having worked for the central bank in Beijing in the 1980s myself, I understand the enormous political barriers to Hua-Liang's ambition. But he is not naive. Plenty of others have bought inefficient state-owned companies and turned them around. And after all, if he does not take the daring plunge, what else can he do?

The writer, an analyst at an investment bank in Hong Kong, contributed this comment to the International Herald Tribune.