The Chinese “miracle” has been financed with loans that will never be paid back. It seems when you don’t pay back loans in China, you DISAPPEAR. These Chinese need to learn from America. When you don’t pay back your loans in America, we loan you more. These heathens need to become civilized like us.
Chinese Business Owners Disappearing as “Underground Loans” Come Due
But, with annual interest rates as high as 200%, “many business owners who were believed to be having trouble paying back loans to underground banks have disappeared,” according to Yu Ran of China Daily.
One of the “disappeared,” Wenzhou eyeglass factory owner Hu Fulin, suddenly vanished on September 21.
“We’ve confirmed that Hu has disappeared, and we’re still not sure whether the rumors saying he left more than 2 billion yuan in debts behind are true,” a government official told Yu. “But current information has proved that he borrowed about 130 million yuan from private lenders.”
Hu’s suppliers in Wenzhou, which the People’s Daily calls “the cradle of China’s private economy,” are in “a panic” and “gathered in his factory demanding payments.” And angry employees protested to demand the two months’ salary they are owed, as well.
But, like the 28 other debtors who have fled in the face of unpayable loans, Hu is now nowhere to be found.
Quoting a Wenzhou People’s Bank report from July, the Epoch Times says “around 90 percent of families and 60 percent of businesses are involved in the private lending market.”
Perhaps unsurprisingly, much of the money circulating underground has been injected into the system by corrupt government officials.
As the Xinhua news agency reported (via Shanghai Daily, via China.org.cn) yesterday, “Money from government officials has been found to be involved in many cases of illegal loans to business owners who are now fleeing the area after finding they are unable to pay back the money.”
“Those officials are now trying to get their money back while keeping a low profile to avoid too much attention,” one unnamed underground lender said.
An editorial in China Daily has some stern words for the businesspeople involved in the Chinese grey financial markets:
All profitable ventures entail some responsibilities which company officials, especially bosses, are obliged to fulfill. Some businesspeople in Wenzhou have not done so and thus harmed overall economic development, although the local supervision department considers them “individual cases” of failure.
Regardless, the Financial News reports that the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank — China’s four largest state-owned financial institutions — have “seen large outflows of deposits” during the first half of the month.
Withdrawals by cash-strapped businesses trying to pay down debt?
Nope.
According to china.org.cn, “Available data and anecdotal evidence indicate a considerable amount of these deposits is being used by private lenders to extend high-interest credit lines to investment and finance companies.”
TeresaE says:
“…considerable amount of these deposits is being used by private lenders to extend high-interest credit lines to investment and finance companies.”…”
According to Benny, this is strength in lending. Except the big guys borrow it at .25%, then lend it to struggling business owners at usurious (but not 200%) rates, and/or they come and demand midterm refi’s with higher interest or payment in full.
American’s underestimate our black market economy. We also underestimate what desperate small business owners will do to hold on to their dreams – even if they should bury them. Sadly, I can totally see this happening here.
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29th September 2011 at 12:18 pm
AWD says:
Admin:
These loans are made by, and/or secured and collected by TRIADS. The equivalent of the mafia in China. Loan sharking, whether by Tony Soprano or Chinese, is not a new concept. It’s been going on for centuries. The greatest loan sharks of all are the credit card companies. 29.9% vig. Makes the guidos drool.
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29th September 2011 at 1:03 pm
Dave Doe says:
Oh Yeah Smokey, These Chinese thing is going to turn out great. Yep.
JIm, what was that Chinese Short ETF again?
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29th September 2011 at 1:07 pm
Muck About says:
FXP is an iShares X2 China Bear ETF. It hasn’t been doing too well lately..
MA
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29th September 2011 at 1:48 pm
Smokey says:
I’m not sure the delinquent loan holders were abducted and whacked.
I think at least some of them vamoosed with the money they had borrowed and are probably sitting poolside with a martini and a whore in Buenos Aires or Rio.
Well-loved. Like or Dislike:
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29th September 2011 at 2:09 pm
Stan says:
In America we send folks to death row. They get a small cell, 23 hours in lock down, visits through a glass window. Shitty food and a bunch of criminals for friends. They get 10 or 15 years to appeal. We let them have a “last meal” of their choice unless its over 15 fucking dollars. We let a fucking preacher try to save their wicked souls, put them on round the clock suicide watch. Finally we inject them with enough poison to kill an elephant.
In China it is different. You are found guilty of a murder or something else bad, they give you a 15 min. trial, find you guilty, take you out back and shoot you in the back of the head with a pistol. No last bowl of rice, no last words.
Now tell me, which is more humane? come on, tell me?
Well-loved. Like or Dislike:
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29th September 2011 at 2:16 pm
Centerfield says:
This article on underground lending reminded me of this fact.
My local hairdresser gal (been going to her for several years, including the entire family) is wanting to branch out on her own. Has a long list of loyal clients and other hairdressers that will follow her to her own place. Needs $20K capital for the start-up expenses but no bank will touch her. Offering 10% interest on small $5K notes to be repaid over 24 months. I might bite, only because (1) she has five kids and ain’t going anywhere, (2) have known her for over a decade, so there is a level of trust, (3) she does a good job with the haircuts, so worst case is I’ve prepaid salon work for the next 4-5 years and (4) where else can I get a really decent return on some idle cash?
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29th September 2011 at 2:22 pm
Administrator says:
Muck
I hope you were being sarcastic about FXP.
Up 56% since July 1.
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29th September 2011 at 2:27 pm
Smokey says:
Centerfield,
Screw the hairdresser. Put the idle cash on my college football picks.
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29th September 2011 at 3:40 pm
Dave Doe says:
Centerfield,
Stucky was 2-4 last week. Hairdresser idea sounds pretty good to me.
More people freaking out on China. Time to scoop up some more FXP Admin.
http://www.businessinsider.com/why-everyones-suddenly-freaking-out-about-china-2011-9#gdp-expectations-are-tanking-1
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29th September 2011 at 3:42 pm
Administrator says:
Thursday, September 29, 2011 11:30 AM
China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans Commit Suicide or Disappear
Here is an interesting email from reader “Kevin” regarding the crashing loan-shark market in China.
Hello Mish
I am a long time reader and want to bring to your attention on a new development in China: private business owners are disappearing or jumping off buildings because they can no longer pay off black market shark loans.
According to national new paper Economics Information (part of state media Xinhua), on 9/22, Hu Fulin, owner of the biggest eyeglass manufacture of the city of Wenzhou disappeared, leaving behind 2 billion RMB debt.
On 9/25, 3 more business owners in Wenzhou disappeared (owners of copper, steel and shoe manufacture).
On 9/27, owner of “Zhengdeli”, a shoe manufacture jumped off of a 22 story building and killed himself.
Since April this year 29 private business owners have disappeared, all of them had over 100 million RMB businesses. 11 of the 29 owned shoe manufacturing businesses.
An analyst from China Investment (China’s Sovereign investment fund) pointed out that it’s because they are squeezed by a rapid increase of component and labor costs. A rising RMB is also a reason why many export oriented companies are hit. In August, Zhou Dewen, President of Wenzhou Small-Medium Business Development Association said the profit margin of Small-Medium businesses in Wenzhou has dropped to under 5% and absent of policy changes, 40% of businesses in Wenzhou will go out of business by next Spring Festival (late Jan 2012)
The complete article is here (in Chinese): http://www.jjckb.cn/2011-09/29/content_334954.htm.
Another article http://finance.sina.com.cn/roll/20110929/005910558780.shtml (titled: China’s Shark Loans Crashing; “Grey Finance” Brewing the Chinese Crisis) states that most of those owners have borrowed “private” loans (typically 70% of all loans), with MONTHLY interest rate ranging from 3% to 10%.
About 89% of families/individuals and 59% of companies in Wenzhou participated in such “private loan” schemes. In Erdos (the ghost city you blogged many times), such “private loans” are more than 200 billion RMB with annual interest rate over 60%. Now they are crashing, causing rampant unfinished real estate projects in Erdos.
Note that Wenzhou is one of riches cities in China (No. 3 in disposable income per capita), and is considered the “Birthplace of China’s Private Economy”. Wenzhou people are among the first that got in trades, manufacturing, export, and in recent years real estate investment/speculation. The Wenzhou economy is considered the “weathercock” of Chinese economy.
Loan Shark Credit Crisis Brewing
Courtesy of Google Translate please consider Gray Chinese-style financial credit crisis brewing area
“Economic Information Daily” correspondent from the multi-confirmed the day before and then there were two causes of Wenzhou City, inability to repay loan sharks and jumping events. According to informed sources, the two business owners are the local shoe factory owner, debt of millions.
Since April this year, Wenzhou, missing more than 80 business owners, the company closed, the event staff pay talks, since September alone, there are up to 25 cases. A local lender told reporters, “At present, only the flight of capital Longwan area estimated to have 100 million or more, many SMEs liabilities, the banks accounted for 30%, accounting for 70% civil usury.”
Crazy expansion of private lending market chaos
Some sharks can reach up to 180% per annum. … “many companies debt snowball, private lending market has not been given attention now has about 25% local to 30% of companies in trouble, some in the suspension or semi-shutdown state, but by the end of this class companies are more likely accounted for 40% to 50%. ”
Financial Earthquake Triggered by Loan Shark Business
Also courtesy of Google Translate, please consider loan-sharking business owners who jumped to escape
September 22, Wenzhou, Zhejiang Jiang Xintai largest optical company chairman Hu Fulin liabilities 2 billion fled, triggering a major earthquake Wenzhou business. Wenzhou Zhou German SME Development Association president, said Hu Fulin liabilities involving nearly ten thousand people, dozens of companies, including upstream and downstream Nobuyasu and creditors, the incident is still fermenting, the impact will be further expanded.
Hu Fulin fled after the September 25 Wenzhou enterprises have three big boss fled; afternoon of September 27, Wenzhou shoe boss is profit because of debt problems from Wenzhou Shun Building, 22 Floor, Jin jumped to death.
The translations are choppy, but the ideas very easy to spot.
$SSEC – Shanghai Exchange -Daily Chart
click on chart for sharper image
China is down another 1% (not reflected in the above chart), to 2368 as of 2:00 AM Thursday. It closed at 2365.
click on chart for sharper image
The Shanghai stock market depicts a credit bubble that collapsed in 2008, partially rebounded, and is sinking once again.
China did not decouple from the global economy, nor is there any reason to believe it will, or should. China’s debt bubble, housing bubble, and copper Ponzi financing schemes are collapsing.
Copper Ponzi Scheme: See Ponzi Financing Involving Copper Trade Gone Wild In China for details of a copper financing scheme now gone bust.
Shark Loans: See Ponzi “Shark Loans” Fuel China’s Housing Bubble; Home Sales Plunge 44% in Xiamen; Bubble Busts in Tianjin for details on how loan shark operations fueled China’s real estate bubble.
Ghost Cities: I have done many stories on China’s ghost cities, most recently World’s Biggest Property Bubble: China’s Ghost Cities Revisited; 64 Million Vacant Properties
Property Loans Halted: Property Loans Halted in China’s 2nd and 3rd-Tier Cities; Is China’s Spectacular Real Estate Bubble About to Pop?
All of these schemes are starting to unravel in a major way.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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29th September 2011 at 3:48 pm
Stan says:
Like I said, its funny as hell. China is a big huge bubble ready to pop. and when they do, they will resort to war.
Mark it.
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29th September 2011 at 4:01 pm
Smokey says:
Dave Doe,
Please NEVER NEVER NEVER confuse me with Stuck again.
I await your apology.
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29th September 2011 at 4:05 pm
Stan says:
I just made the liberal democrats on Mish mad as hell. But the truth hurts bad.
The Truth will make you pissed off. So be it.
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29th September 2011 at 4:12 pm
Stucky says:
The BEST advice you will receive today, or any other day ——> “OWE NO ONE ANYTHING”
——— Apostle Paul, Romans 13:8
.
The debtor gets shot, the creditor doesn’t get his money back ….. so both are fucked.
This also applies to the bigger picture of USA & China regarding who owes whom what. As you can see below we are BOTH fucked.
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29th September 2011 at 4:47 pm
Dave Doe says:
Smokey,
My bad, I thought you were Stucky’s Evil Twin when in fact you’re LLPOH’s evil twin.
Don’t worry about the predictions, I’m keeping track.
Your Adoring Pal (not that way)
Dave Doe
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29th September 2011 at 5:22 pm
AWD says:
Stucky: Love that diagram. Funny, were it not true.
Triads are organized criminals in China, they have been around for centuries, some of the oldest criminal organizations in the world. Very competent loan sharks. The above articles don’t reference them specifically, but it is clear they are the muscle and corruption involved in these loans. If you owed the triads money and couldn’t pay, you’d jump off a building too. People don’t abscond with Triad money, smokey, they would track you to the far ends of the earth. In fact, they are already at the far ends of the earth. There is no escaping triad justice.
A short list of Triad societies:
14K Group 十四K
Long Zi Group 龙子字頭
Luen Group 聯字頭
Wo Group 和字頭
Ah Kong 新加坡黑手黨
Ang Soon Tong 昂很快塘
Big Circle Gang 大圈幫
Black Dragons 黑龍
Chongqing group 重慶組
Tung Group 東字頭
Tong Group 同字頭
Kwong Group 廣字頭
Yuet Group 粵字頭
Chiu Chow Group 潮州
Wah Ching 華青
Wah Kee 華記
Great names eh? Wah Ching is huge, with branch offices all over the U.S. The triads make “the black hand” (Italian and American mafia) look like a bunch of newcomer amateurs.
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29th September 2011 at 7:24 pm
Smokey says:
I’ve had dealings with the Triads.
They are a bunch of pussies who I have bitch-slapped on more than one occasion.
Fucking flied lice eating gooks.
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29th September 2011 at 7:44 pm
AWD says:
People in China that can’t afford guns or poison to commit suicide simply write an article, any article, about the Triads in a local paper. They are never seen again (but their organs are, in some rich American’s guts status post transplant).
Keep dreaming Smokey. I thought this was the Chinese century? (your words)
btw, gook is a Korean word, meaning “foreigner” megook, weigook, (American foreigner, any foreigner). S. Koreans fought bravely in the Vietnam War alongside Americans. The Koreans, speaking in Korean, addressed the Viet Cong as “gooks” because, technically, they were foreigners to the Korean soldiers. The Americans obviously liked the word and adopted it for their own. Then they dropped napalm on the fucking gooks, fried them up, and ate them with some cold rice, hence the term “flied lice”. Most rice in Viet Nam contained lice. Well done, to combine all that heritage and knowledge into one sentence.
Unless you are Korean or are a Viet Nam war vet, calling Chinese “gooks” is both offensive and incorrect.
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29th September 2011 at 8:03 pm
Dave Doe says:
I’m creating my own “Smokey Bear” X2 Fund.
50% FXP and 50% Contra Smokey College Football Picks.
Mortal Lock X2
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29th September 2011 at 8:26 pm
Smokey says:
Fucking flied lice eating Chinks.
That better, AWD?
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29th September 2011 at 8:28 pm
AWD says:
Much, thank you! Like I give a fuck what you call ‘em. My personal favorite has always been “slopes”
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29th September 2011 at 8:30 pm