Shadow Bankers Vanishing Leave China Victims Seeing Scams - Bloomberg

Shadow Bankers Vanishing Leave China Victims Seeing Scams - Bloomberg

The shadow bankers are now disappearing, committing suicide or reneging on agreements, leaving thousands of victims in their wake. In the first half of the year, more than 58,000 lawsuits involving disputes over 28.4 billion yuan in private lending were filed in Zhejiang province, where Wenzhou is located, up 27 percent from the same period in 2011 and the most in five years, according to the provincial supreme court. One-fifth of the cases were in Wenzhou, where authorities have set up a special court to handle the surge.
Private-lending victims nationwide filed more than 600,000 lawsuits valued at 110 billion yuan in 2011, an increase of 38 percent from the previous year. In the first half of 2012, the number of filings rose 25 percent to 376,000, according to People’s Court, a newspaper run by China’s Supreme Court.
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In Erdos, about 150 kilometers (93 miles) south of Baotou, 80 percent of housing-construction projects are halted after home prices tumbled to 3,000 yuan per square meter from a record 20,000 yuan per square meter, Caijing magazine reported Sept. 3. The biggest source of funds was private lending, and as defaults surged this year people began greeting each other by asking how much savings they were able to retrieve from their shadow- banking investments, the report said.
The Chinese government has been stepping up efforts to regulate underground lending and guide private capital toward serving the economy instead of speculating on real estate and commodities. Since the State Council, China’s cabinet, selected Wenzhou for a trial program in March, it has allowed the nation’s private investors into some state-controlled strategic industries, including health care, railways, telecommunications, water resources and banking.