More on Private Lending Woes in China

Global Macro Monitor found this video. The beginning of the news script reads as follows

There are growing concerns over China’s private lending market, after a corporate boss in southeastern Zhejiang Province reportedly fled overseas because of debt he could not repay. It sparked a mass protest over the weekend, with employees and suppliers demanding the money they’re owed.

Workers of one of China’s largest spectacle makers protested over the weekend, after the boss of the indebted company disappeared last week. Hu Fulin founded the Zhejiang Center Group. It could be the latest casualty in China’s escalating private lending woes.

Hundreds of Hu’s employees marched down the street of Wenzhou on Sunday to demand their pay. They got word their boss had fled the country, leaving behind a massive debt. The demonstration temporarily brought local traffic to a standstill.

NTD TV China

I see this private lending market as a bit like pay day loans in the US. The goal, however, is to get around lending restrictions imposed by the state. The lesson is clear: once bubble psychology takes over, it is difficult to dislodge it. People will resort to all manner of imprudent and even illegal behaviour to keep the gravy train going.

2 Comments
  1. Timothy Archer says

    Actually, this “Private Lending” in China appears to be more like loansharking than payday loans. The interest rates are commonly 3% -10% PER MONTH. See http://globaleconomicanalysis.blogspot.com/2011/09/china-loan-shark-market-crashes-scores.html. Apparently 29 chinese business leaders have disappeared or committed suicide since April.

    1. David Lazarus says

      Payday loans like that are identical to loan sharks in terms of interest rates. It also explains why many governments will not regulate against such loan rates because even mainstream banks could be affected by restrictions on interest rates charged.

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