The collapse of a major lighter manufacturer and a shipbuilder in Wenzhou has sparked speculation that it signals the onslaught of another wave of closures in what was once a celebrated boom town on the coast of Zhejiang province.

Since the town's many small and medium-sized manufacturing enterprises were clobbered by the global economic recession in 2008, the local government has been busy salvaging some of those that went under. The wide publicity given to the broken dream of Wenzhou prompted the government to introduce a sweeping financial reform that is to serve as an example to be applied nationally.

A major objective of the reform is to create a proper, and adequately supervised, platform to provide funding to the struggling enterprises that are being hard pressed by diminishing overseas demand and escalating costs, particularly labor costs. In so doing, the government is effectively trying to push out the underground lenders who, for years, have been these enterprises' major source of funds.

Finance officials in Wenzhou have said they intend to use this platform to help restructure and refinance some 200 private enterprises in 2013. The officials haven't provided further details about the criteria they may use in determining which enterprises are worth saving.

To be sure, government bailouts are sometimes necessary to save jobs and resuscitate local economies. But the many small to medium-sized manufacturing enterprises in Wenzhou, which are producing labor-intensive and low profit margin merchandise and competing in the world market on price alone, should be left to fend for themselves.

When these manufacturers fail because they can no longer compete with their counterparts in the lower-cost manufacturing bases in Vietnam or Bangladesh, they should be allowed to fail. The government should step in only to protect the interests of the workers. And when public funds must be employed, they should be used only to compensate the workers rather than propping up a business that has no future.

Many manufacturing companies in Wenzhou failed because their owners lost money not in their businesses but in reckless speculation in stocks, property, coal mines or commodity futures. Some of them have fled to overseas safe havens, leaving behind piles of debt and scores of unpaid workers.

It is known that a few of these fugitives have returned to Wenzhou in answer to the pleas of the local government for help in reorganizing their businesses. But it is doubtful if such efforts can serve any useful purpose in achieving the longer-term goal of industrial restructuring. It would be better to just close down failed factories and ignore the irresponsible owners who have chosen to live out the remaining days of their lives as fugitives in whatever countries are willing to take them.

Financial reform has a wider meaning and loftier mission than just shutting down the underground banking system. It should be tied to the government policy of industrial restructuring by providing stable and long-term funding to well-managed and strong manufacturing enterprises seeking to move up the value-added chain.

These ambitious enterprises are in need of funds to finance the time- consuming and potentially risky development of innovative products and the even more lengthy process of brand building in the domestic marketplace. Most established banks are either ill-prepared or unwilling to finance such projects without sufficient collateral assets. This is where the government-sponsored lending platform in Wenzhou can help by matching those qualified borrowers with lenders who are willing to take the risks for higher returns.

Instead of boasting how many rotten enterprises they have saved from closure, Wenzhou's financial officials should focus their efforts on helping worthy enterprises enhance their competitiveness through innovation and brand building. Otherwise, financial reform is nothing but a pointless example of bureaucratic meddling.

(China Daily 01/08/2013 page8)