Wenzhou, China, is certainly having a hard year. The city, which has grown from a backwater into an economic juggernaut in the past 30 years, has recently seen its largest export market, Europe, collapse, and local money markets have been forced to adjust to post-stimulus realities.

The Wall Street Journal recently reported that the city of three million is “unravelling,” while The New York Times claimed that its entrepreneurs are “running scared.” Their evidence? Ninety (out of 400,000) factory owners are known to have fled the city, after a brief but sharp adjustment in Wenzhou’s traditional credit markets.

So with that, is Wenzhou’s boom over? Probably not.

After 30 years of business and bending the law, citizens of Wenzhou built a global trading network that enriched thousands of factory owners and created high-paying jobs that attracted millions of economic migrants. Wenzhou residents became involved with a wide variety of businesses: plastics at home; cell phones in Shenzhen; property in Dubai; textiles in Italy. Wenzhounese gained a reputation as the master businessmen of China.

And this growth was built in large part on access to loans at usurious rates.

Runaway bosses are, of course, nothing new in annals of Chinese business. In September 2008, before there was any sign of a financial crisis in China, I interviewed a listing advisor who was touting the success of Canton Property’s August 2007 IPO on the AIM stock exchange, which he helped arrange. By coincidence, two weeks after the interview the boss of Canton properties ran off with a pile of the firm’s cash, leaving investors (and a whole lot of others) in the lurch.

Wenzhou’s financial system is more or less explicitly set up to deal with exactly such a problem. There’s no such thing as “too big to fail” in Wenzhou. Rather, failure is a fundamental component of the system.

There are literally thousands of lenders in the city, ranging from mobsters to the moderately successful man down the road. Whenever one of these people makes a loan, they are weighing the possibility of failure or fraud against the possibility of a high return on investment. In the course of business plenty of borrowers default, in which case either other borrowers pick up the slack with high interest rates or the lender goes bust and makes room for those with better risk management.

With 400,000 business owners, there are 400,000 strategies for making money, and with thousands of financiers, money will gravitate to those that are more successful.

A macro-shock can easily cause more borrowers or lenders to go broke than would otherwise happen, but the Wenzhounese financial system has an advantage that many national financial systems lacks: It’s diversified.

While the Wenzhounese are known for making buttons, zippers, lighters, and toys, as I note in Reason’s December issue, the Wenzhounese are involved with a vast array of manufacturing businesses, many of which are not based in the city of Wenzhou. Wenzhounese are creating clothes for South Africa which are sewn in Southeast Asia, using techniques learned in Italy, and dyes made at home. Local entrepreneurs build car parts for South Korea, and set up cell phone factories in Shenzhen, as well as mining (often illegally) in Shanxi. And of course they buy property everywhere they go. All of this is done with money that has been funneled through the Wenzhou financial system, and the Wenzhou financial system directs money anywhere among this network of entrepreneurs where there is a potential return. Companies that don’t do so quickly fail.

None of this is to say that usury is the ideal way to run a city. While the city’s financial system has helped the locals build impressive amounts of wealth, a constant low-level violence underpins the bankruptcies and bank failures that are a daily part of life in Wenzhou. The government is strong enough to keep the mob from monopolizing finance and kleptocratic enough to keep entrepreneurs from dominating the industry; but beyond that the police are hands off.

But in plain view we see 30 years of astounding economic growth that has moved millions of people out of poverty. Not every Chinese person would want to take his chances in the city of Wenzhou, but enough do to make the city and its financial system astoundingly vibrant.

Bradley Gardner is a business writer based in Beijing.