Tire World Network recently learned from relevant people that the Shandong tire company Deruibao, which went bankrupt last year, has dragged down 12 related companies into trouble.
It is understood that before the bankruptcy, Derubao established a credit "interconnected security" relationship with these 12 companies. Most of these are tire production related companies.
"Internet and mutual security" is booming
The relevant person told Tire World that, prior to this, the phenomenon of “interconnected and mutual protection” was common among Dongying enterprises, especially in the tire industry, which was regarded as a local pillar industry, with few exceptions.
It is understood that "interconnected mutual insurance" is a traditional financing method for private enterprises. After the bank lends to the enterprise, the guaranteed loan is borne by the enterprise, which is referred to as “mutual insurance”. The “guarantee” loan refers to three or more small and medium-sized enterprises that voluntarily form a guarantee complex. When one of the enterprises applies for a loan from the bank, all members of the joint insurance body must bear the joint and several liability for repayment.
In the past few years, the domestic tire industry has been in full swing. Some enterprises in Dongying, Shandong, have seen business opportunities, but they have suffered from a shortage of funds. Due to insufficient financial credit, it is sometimes difficult to borrow money from banks. In order to obtain loans and promote business development, these SMEs have established a “interconnected and secure” debt relationship. However, this kind of “guarantee circle” between enterprises is extremely risky. The bankruptcy of a single enterprise often leads to the snowball-style “mutual insurance” of related companies.
In the past two years, in the face of the market downturn, some tire companies have been insolvent, and the recovery is hopeless. They have to rely on government support and bank lending for a long time to barely support. Behind these "zombie companies", there is often a lot of "interconnected and mutual insurance" companies. The “guarantee chain” sometimes evolves into the “chain of death” of the enterprise.
Huge risk and harm
In February 2015, Deruibao Tire officially declared bankruptcy. After that, Double Star Tire signed an “asset lease agreement” with it and merged into the company.
It is reported that in recent years, private enterprises in various localities have frequently erupted bank lending and mortgage loans triggered by “mutual insurance” and “union insurance”. After 2014, the situation of the domestic tire industry has deteriorated. The drawbacks of this “guarantee circle” have gradually emerged in some tire companies.
Some people have worried that many tire companies in Dongying will collapse like “Dominoes” because of this complicated guarantee relationship. Perhaps because of this, the local government is very worried about the bankruptcy of tire companies. It is said that once a company encounters financial problems, the government will come forward to coordinate and resolve.
The relevant person told Tire World that the “interconnected and mutual protection” approach has a great destructive effect on economic development. According to analysis, when the economy declines to overcapacity in the manufacturing industry, the amount of corporate guarantees often exceeds the funds needed for their own turnover, and this financing model will bring disaster to the enterprise.
Now, China's tire industry is in the stage of overcapacity. The risk and harm of this model is self-evident.