Zongheng Group in Financial Crisis
[2008-12-23 17:04:00]
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Zongheng Group in Financial Crisis
October 8, 2008, Zhejiang Zongheng Group's Chairman and general manager, Yuan Boren with 7 billion yuan of wealth was listed for the first time in Hurun China Rich List as the only local entrepreneur in Shaoxing. However, Zongheng Group was in financial crises after only 15 days. December 5, the government working group was organized and the office was set up in Zongheng Group. Initial verification revealed that the company have a deficit of 2-3 billion yuan. Since October this year, Zongheng Group have been in a shortage of cash flow due to the sharp fall in prices of chemical fiber and the raw materials. The company usually imported raw materials in term of L/C, so the loss was even more serious. On the other hand, Zongheng Group's blind investment takes up a lot of money. The long-term investments such as real estate, molybdenum, such as water and electricity projects are difficult to become cash in a short period of time. Zongheng Group's capital-strand breaks is another typical case in Shaoxing textile industry this year. The other enterprises closed or running at low rates in Shaoxing include Hualian Sunshine, Jianglong Holding Group, Wuhuan Spandex Industrial Group, Jinxiong Group, Yaolong Spunbonded Nonwoven Technology Co., and Shengzhou Beisite Knitted Garments Co. The industry sources said about 7 companies provided the security for Zongheng Group that has also provided security for the other 18 companies, involving a total guarantee amount of about 3 billion yuan. In order to stabilize the local economy, Shaoxing government has planned to save the enterprise. The government set up a special security company to take over security relationship. In addition, Hualian Sunshine and Jianglong Holding Group's problem has not come to an end. Due to weak demand, Hualian Sunshine only operates one line and the government is still investigating the assets and debt before reorganization. The status of the company equity will be defined after that. The court trial on Jianglong Holding's chairman, Tao Shoulong and his wife will be conducted this month. Background Fierce competition leads to increasingly meager profits in chemical fiber industry. In 2007, output value of Shaoxing textile industry was about 130 billion yuan and the export accounted for about one-third; coupled with the exports from other channels, dependency of Shaoxing textile industry on foreign market was close to 50%. However, textile exports was hit by the rapid appreciation of the yuan in H1 2008 and the sharp drop in demand caused by global economic crisis in H2 this year. The margins of textile industry became thin. With the data in 2005, profits of textile industry accounted for about 3% of sales, but the yuan appreciation rate reached 6.1% in the first half of this year. |
Source: 中国棉纺织信息网
Keywords:Nylon; Fabric; Cotton
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