By staff reporter Shen Hu

Authorities in Shaoxing, a Zhejiang Province city in the heart of eastern China’s textile manufacturing region, are ready to rescue teetering textile companies struggling to pay their debts.

Feng Jianrong, vice governor for the city’s Shaoxing County, which is also one of China’s wealthiest counties, said the local government would bail out four private enterprises, regardless of cost.

The announcement came after the companies -- Jinxiong Textile Group, Hualian Sunshine Petrochemical Co., Zhejiang Jianglong Holding Group, and Wuhuan Spandex Industry Group – each reported a liquidity crisis in August. The news triggered a near panic in the local textile industry and banking sector.

Another county vice governor, Meng Bogan, said the combined debt of the four enterprises totals 14.6 billion yuan. That includes 11.3 billion yuan in bank loans, of which 6.9 billion yuan is guaranteed by 33 other companies.

Weak management and a cumbersome financial web that links the region’s enterprises have been cited as reasons for the threat of widespread defaults that could devastate the regional textile sector.

The director of the Shaoxing Banking Regulatory Department, Luo Youcai, blamed flawed management and excessive reliance on private financing for the crisis. In addition, he faulted companies for adding to their financial risks through overexpansion.

An industry source told Caijing the crisis underscores the dangers of Shaoxing’s one-industry economy, as well as the complicated lending network and mutual financial assurance that contributed to risk-taking among companies.

A bailout plan has already saved Hualian Sunshine, one of China’s biggest producers of a textile-making chemical called purified terephthalic acid (PTA). Caijing learned the company was unable to repay loans from 18 banks, but that it was brought back from the brink with a 1.6 billion yuan capital injection from two other companies October 16.

Although details have not been released, banking sources disclosed that Hualian Sunshine’s lenders include the Bank of China and Industrial and Commercial Bank of China (ICBC). Loans from ICBC may have reached 2.5 billion yuan.

Local authorities got involved in August when they started supervising enterprise restructuring and persuading banks to go easy on the troubled debtors. The government also reportedly offered policy support to distressed companies.

A banking source told Caijing that the expectations of local officials would be difficult for banks to meet. Nevertheless, the government’s intervention has relieved enterprises of some of the pressure.

In addition to the Hualian Sunshine bailout, a restructuring plan for Zhejiang Jianglong has been finalized. But plans for saving Jinxiong Textile and Wuhuan Spandex are still in the works.

1 yuan = 14 U.S. cents