China Credit Squeeze Prompts Suicides, Violence

Discussion in 'Economics' started by ASusilovic, Nov 7, 2011.

  1. Hours after a creditor and his gang of tattooed thugs hustled Zhong Maojin into a coffee shop in Wenzhou, he says he wouldn’t yield to their demands.

    They wanted to take over one of the pharmacies in a chain he’d built by borrowing from private lenders. Instead, he made an offer of traditional retribution in this eastern Chinese city, known for loan sharks who have sometimes meted out violence to bad debtors.

    “If you like, you can cut off one of my fingers instead,” Zhong, 42, says he told them.

    Giving up the store would have made it impossible to pay back another 130 creditors, Zhong said. He’d borrowed 30 million yuan ($4.7 million) at interest rates as high as 7 percent a month to expand the business. Many of the lenders were elderly neighbors who’d mortgaged their homes.

    At least 90 bosses in similar situations to Zhong have fled the city since April, and two killed themselves, according to Zhou Dewen, head of a small business association in Wenzhou. One was shoemaker Shen Kuizheng, who jumped to his death from his 22nd-story home on Sept. 21, he said.

    Wenzhou’s 400,000 businesses are facing financial hardship because of rising costs, soaring black market interest rates and a sudden credit squeeze, Zhou said. Similar problems are happening across China because private enterprises in China rely on underground borrowing rather than banks to operate, he said.

    Their predicament prompted China’s premier Wen Jiabao to visit the city 230 miles (370 kilometers) south of Shanghai on Oct. 4, where he pledged help for troubled businesses. National and local leaders have since announced moves to help small firms, including offering easier access to bank loans, a cap on private-lending interest rates in Wenzhou and a crackdown on loan sharks that use violence.

    http://www.bloomberg.com/news/2011-...cides-along-with-offer-to-sever-a-finger.html
     
  2. how tough is that...you can cut off one of my fingers...modern day deadwood
     
  3. Zhong needed cash to keep paying his suppliers, rent and employees. Scanning the local paper one day, he saw an ad for loans without collateral. He dialed the number and arranged to borrow 600,000 yuan for one month, from what Zhong called a “gaolidai,” a Chinese term for a loan shark. He borrowed again and started to just pay interest and roll over the principal, he said. Rates rose to 7 percent a month.


    Only 7% a year. Much better rates than Credit Cards in the US or payday loans. :D
     
  4. nkhoi

    nkhoi


    no wonder Zhong was in trouble he mixed up 7% a month for 7% a year.
     
  5. S2007S

    S2007S

    I read a story like this a few weeks back, its getting very interesting, if there is any kind of slow down in China tens of millions of people will be feeling the squeeze as the only way to borrow money is mostly through private lenders. This will be a domino effect, China GDP is around 9%, if it drops just 2 or 3% points to around 6 or 7% you will be feeling the recessions here and around the world. China is the only country holding this world together, once they slow down the entire world is going to feel it. Our GDP here will fall below 0%....BUBBLE ben bernanke better get a few more printing presses.....