2014-05-12

Gold Is Money; Ordos "City of Debt" Residents Settle Debts With Silver and Gold; Gold for Cars and Silver for Houses

Debts are being settled in Ordos at half of face value when transacting in silver handicrafts.

Houses bartered for commodities in ghost town Ordos
In Ordos, one of the 12 subdivisions of Inner Mongolia, people in the ghost city are bartering to settle their debts.

Ordos real estate entrepreneur He Jun has gathered many debts since the private loan sector in the city collapsed two years ago. He is just one of the army of debtors in Ordos, once the richest city in China in terms of per capita GDP on the back of its coal reserves but now called the "city of debt," according to the China Securities Journal.

Since most of the debtors are also creditors, they started paying debts with objects such as wine and houses that their own debtors had provided to settle their debts, the journal said.

At first, the most common debt settler was Chinese liquor or baijiu, a favorite of native Inner Mongolian residents. However, the lack of price transparency with the liquor prompted local law enforcement departments to ban settlement with the product.

He Jun turned to precious metals because of the ban. "I believe gold and silver, which have high market liquidity, are suitable for settling debts," he noted, adding that "gold can be exchanged for cars and silver for houses."

"After the real estate bubble burst, many houses remain uninhabited in Ordos. As a result, no one is willing to exchange houses for gold. Houses can only be exchanged for silver," He added.

For example, He use silver objects worth 500,000 yuan (US$80,000) to pay off at least 1 million yuan (US$160,000) in debt.

According to He's estimate, the value of private debts in Ordos stands at over 200 billion yuan (US$32 billion). "They can only be settled gradually over time," he added.

In this Chinese article, 鄂尔多斯式抵债:金换车银换房, it notes that these trades are mainly used where the value of the home is in question. Also, in Ordos, everyone already owns homes and nobody wants to buy homes, and nobody wants prices to fall further if they transact in yuan in the market, so residents settle debts with other assets. One resident is hoping to settle debts with a 1 million yuan collection of jade artifacts.

The article also discusses how during the boom, Ordos residents didn't need to work—many lived off the interest from their loans. Now residents don't play mahjong anymore and the restaurants are closed. Deep in debt, they are all back to work earning money.

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