Posted on 10/15/2011 7:29:24 AM PDT by TigerLikesRooster
By staff reporters Zhang Bing, Zheng Fei and Zhao Jingting 10.11.2011 14:36
Cash Crash for Wenzhou's Private Loan Network
Everyone can win and everyone can lose in a Chinese city that plays a risky game of high-interest rate, private lending
Dubbed the nation's capital of private financing, the city of Wenzhou offers a textbook example of how non-bank lending has fueled private sector prosperity – and risk-taking – in China.
A recent central bank survey said about 60 percent of all local businesses and the vast majority of households are interconnected through the city's private lending system. a
It's a tight financial network that interweaves lenders and borrowers collectively, often to their mutual benefit and sometimes to their terrible loss.
If only a few debt-ridden companies collapse because they can't afford to repay the high-rate, short-term loans they've gotten from private lenders in the network, the ensuing financial trouble can ripple through the entire credit-connected community, exempting few from turmoil.
Since early this year, according to the Wenzhou Public Security Bureau, some major Wenzhou-area private company owners have fled creditors to avoid repaying loans. In each of these cases, though, the system survived relatively unscathed, and community dealmaking continued.
(Excerpt) Read more at english.caixin.cn ...
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