Understanding China, One Blog at a Time

An American in China

China’s Loan Sharks and Poor Corporate Governance

Posted by w_thames_the_d on October 3, 2011

Here is a comment from Brewskie. He is reposting something from a guy named Obamao and the guy is describing loan sharks in China. They are offering loans for high interest rates and in true Chinese fashion are brutally mercenary upon collecting them.
from Brewskie:
Oh yeah. Most Americans forgot about the moon landing after 15 minutes – and that was before video games, talking heads, internet virals.

Flippin’ to a different subject… the wise, ass-crackin’ obamao rose his head to yak about ponzi shark loan finance schemes:

“China’s real estate market is a huge ponzi scheme supported by shark loans. They are located on street corners with touts to bring customers in. There are more loan shark shops than convenience stores in some blocks. Ordinary Chinese pledge their houses to get low interest loans from the banks like our cashout refis, then lend to local shark loan companies at high interest rates to speculate in the real estate market. Actually, at the later part of 2008, when real estate prices dipped for while in China, many ponzi shark loan schemes blew up in parts of China. A whole city was rioting since many households couldn’t get the principal back after the local loan shark companies couldn’t pay interest anymore due to the real estate price slump.

So many ordinary households pledge their inflated houses and get a loan from the bank, then lend the money to a shark loan operator with 20-150% annual interest rate, this shark loan operator then lends this aggregated loan to real estate developers, speculators, or some SME (small medium size enterprises or privately owned company) which has to pay back the bank. ( China’s banking system operates at a roll over loan base on a year on year base, so many Chinese SME’s will borrow at shark loan market rates to pay back the bank, then days later, use the approved new bank loan to pay back. This is a very common practice, given the dire situation of many SME exporters due to razor thin profit margins combined with rising labor costs. Furthermore, in recent years, many SME’s totally stopped their old business of exporting , since the high return of real estate drove more and more of them into this historical bubble.”

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