10 Years of Wealth Accumulation Gone in 2 Years

Yulin in Shaanxi became wealthy on coal mining. Then came a real estate boom, pyramid loans and the bust. A decade of wealth wiped out in a two year crash as coal prices collapsed. The saga has everything. Bank loans were cheaper than private loans, so individuals loaded up on bank debt and then lent into the private market to earn higher rates. Credit guarantee firms, rehypothecated assets and fraud all play their role.

Yulin, Ordos and other isolated cases, in part because of the coal industry, in part because they took speculation to the extreme. However, the stories here are only amplified versions of what goes on all over China.


Person "decade, as made a high fever. Yulin for some people, the accumulation of wealth over the past ten years, almost all zero in the last two years." Recently, Yulin City, a participation of private lending, "the first a Financial Daily "said.

"2012 is a landmark for people in Yulin, the economic crisis, but this is not the most serious, the most serious since the collapse of the credit system, probably for a long time can not be restored." Yulin high local bank branch pipe from another angle reveals a profound impact on civil debt crisis is "First Financial Daily."

"First Financial Daily" reporter field survey found that during the economic upside, individuals, businesses, private financial institutions, banks have a slice from the "boom" of private lending, and the debt snowball rolling increasingly big. Today, the Yulin folk debt crisis continues fermentation, the credit system to rebuild road resistance and long.

"Pyramid" private lending

"In 1994, when the town began Daliuta have owned coal mines. Then mining is very simple, easy approval procedures, private mining cheap prices. Shenmu almost all towns under the jurisdiction of mining, but has been operating at a loss. "Shenmu lawyer Guo Xiang (a pseudonym) on the" First Financial Daily "said that the early 1990s shares 10,000 yuan, the 2008 dividend will be able to tens of millions, and even shares a lot of people did not expect to return.

The late 1990s to early 2000, Inner Mongolia Erdos coal economy began to develop. Less than 100 kilometers away from Ordos, Yulin City, Shaanxi Province, Shenmu late start, after 2002 years ago, the situation improved mine operator, from 2008 to 2011 became the peak period.

Mine started with a huge bonus, private lending has flourished. Initially the private lending distinct characteristics, the first procedure is extremely simple. The simplest form is a verbal commitment to square one phone with money lenders can make money playing on arrival. Borrowing also help in the form of lending to friends and relatives, usually do not expect returns.

There are local people on the "First Financial Daily" said in a neighboring village with the neighbors and relatives previously borrowed 10,000 yuan, the results of the dividend assigned to two million yuan. "On the surface, dividends or interest, but at the time the intention is actually a kind of gratitude."

Since such cases are more to borrow money to go out, get high returns, and gradually formed a prototype of private lending, private capital has gradually been market price: low monthly interest rate two points to 3 points, 5 minutes to a high angle .

Gradually, the private financial markets have become increasingly complex. Also available from the beginning of the rich coal mining boss, shareholder dividends investors, expanded to fry mine who were speculation and usury lenders. Also expanded the scope of borrowing from relatives and friends began to acquaintances, acquaintances of acquaintances, the formalities began playing IOU, please guarantor, lending relationship "pyramid" type of infinite layer began to appear.

"National Pawn, universal borrowing. Textile shop, grain stores, etc., in front of business, back to 'open note'." Guo Xiang said, there is a special place of business of small loan companies have begun to appear.

This situation has appeared in the Ordos too. A local coal mining enterprises Erdos middle managers on the "First Financial Daily" said that many people earn a pot of gold at stake in coal mines in 2004. Also from 2004 years ago, an informal pawn shops appeared, including grain and oil, and there's pawn office began operations.

"At that time there are many women out Gaoqian, melting money is acquaintances know assets on loans, without collateral." Said the middle-management level, pawn shops generally give a monthly interest rate of interest is 3 points to 3 points 5 to later gave to five points, and now almost all pawn shops closed.

Xi'an relatively small loan companies cautious, do market research, lenders require mortgage, once the debtor repayment problems, mortgage asset auction quickly. But even so, then a large number of small loan companies did not escape either back to the account of the outcome.

"Money is a small loan company loan received during consists of two parts, one part is paid to the cost of capital funding sources, which is part of the monthly interest rate of 3 points in general; another part is a small loan companies charge management fees, this part is also 3 points "A person involved in microfinance Xi'an company's business on the" left and right, so the cost of capital in the monthly interest rate loans are generally about 6 minutes. First Financial Daily "said that Xi'an real estate with Yulin different, even if price fluctuations, house prices have remained relatively high, the auction can generally be shot.It also Bo Xing Yan

Most private lending during the "boom" is the fried tide up after mine. More persons interviewed Yulin regions to the "First Financial Daily" depicted the same "shocking" story, that more and more capital inflows Yulin, coal prices have begun to appear straight up in the morning a price, prices rose another afternoon. During this period, who can get money in the shortest possible time, who will be able to earn a billion dollars spread quickly.

This stimulus, private lending reached its peak, the huge "pyramid" type of lending system to see the border - bottom of the lender does not know his own capital flows, but according to the monthly interest rate of 2 to 3 minutes to eat the price of fixed interest.

Local sources said that as people become more wealthy, more prosperous economy, more and more foreigners flock to Yulin, a subsidiary of the large number of farmers in rural areas have begun to flock to the city. Plus the government's positive infrastructure planning, land development, real estate followed after mine, become another encounter financial boom in the industry. However, when usury become the most profitable industry, the main source of funding becomes usury usury, and so on ad infinitum.

Erdos a coal mining enterprise office staff told the "First Financial Daily", her more than 20 million yuan annual monthly interest rate of 2 points to the price put to a relative, never asked the funds are ultimately invested, the interest on a monthly basis or press quarter receive. But now her relatives capital chain has been broken everywhere with her relatives who chase account.

"Good times, three hundred thousand of our people are not funds, but also drove into." She told this newspaper that the company another colleague has been engaged in private lending, many of my colleagues have the money to her management, monthly interest rate of 2 points or 2 points 5, then the problem is not on the money, every day by colleagues to account, now do not work.

From conscience to fish in troubled waters

In fact, different "pyramid" has a different internal structure, but also hides different risks.

A typical private lending structure is "spire equity financing, debt financing grassroots level." For example, two people partner paid 100 million yuan to buy a price one billion yuan mine mined production, mineral rights get our hands after evidence, the two went to finance 50 million yuan respectively. Actually, only two names on the list of shareholders tenements. Subsequent to the gradient of the monthly interest on financing to borrow, such as duo with monthly interest rate of 5 points from 10 lenders at the loan, which is 10 100 lenders and from other lenders impose a monthly interest rate of 3 points borrowings. So multi-layered analogy, some of which will have a small part of the level and pawn loan companies to participate.

Another "pyramid structure" is the "equity financing structures," Yulin known locally as "climb Unit." That is, each level is to conduct financial transactions in the form of equity investments, behind each shareholder has a lot of small shareholders. Pawn shops and small loan companies due to funding sources require regular interest payments, it is generally not choose equity method investments.

Both sides in the borrowing of funds to complete the formalities - that is, write IOUs will show the amount received is not the capital stock, but the actual return or "rigid honor" in nature. This is in different regions have different characteristics.

Xi'an, a common practice is to write loans in interest. For example, borrowing one million yuan, 400,000 yuan of interest, then the two sides will indicate "Today ××× received 1.4 million yuan in cash" in the IOU. "The two sides began to talk about the investment shares may be, if the investment is successful, funders will demand dividends, not to mention both these documents was written. If investment losses, funders will put out the documents required by the number of pay back the money." Xi'an involved in the aforementioned small loan business on the "First Financial Daily" said that in case the borrower is very urgent to finance, this approach is very common.

Only an IOU, how to conduct risk control? In Yulin, among the majority of loans without collateral, small loan companies or corporate borrowers more choice "guaranteed way" wind control, namely to find a relatively prestigious people do guarantor.

"First Financial Daily" from Yulin local learned that the economic situation is good, select "climb Unit," the more, the lender wants to share "riches" results. However, just by a promissory note, in accordance with what criteria dividends? Newspaper reporters in Yulin, Xi'an and other places Erdos got a surprisingly consistent answers: conscience.

"I have a stake in a mine 20,000 yuan relatives, then dividends 5,000,000. Actually divided 1 million is divided, we say it is conscience money." Yulin one respondent on the "First Financial Daily" said, how about mine benefits , we will have a rough idea, if the share is too small will give themselves "climb" the shareholder comments. "However, due to the need to engage in coal mining through banquets, gifts come down RBI relations, spent part of the unspoken, so much that he did not specifically dividends exact figures."

It is this relationship has no legal constraint dividends, "cheap" later many fish in troubled waters. When coal prices decline, the deteriorating economic situation, many in fact make money with no money on the financing side refused dividends less dividends.

Bank's two faces

In the aftermath of the debt crisis is not flat folk moment, Yulin local banking institutions is what attitude?

"First Financial Daily" survey found that companies, small loan companies feel between banks and mutual blame. Enterprise blame banks, on a good may not grant loans to the final, expensive bridge financing companies do not bear on the project funding gap can not have open work, the final funding strand breaks; Bank strange small loan companies, the interest given to five points, six points, or 8 points, an angle, which greatly pushed up the cost of capital, the formation of the bubble economy; small loan company strange business, said good high return?

In addition, despite the recent national introduction of a number of measures to lower the cost of financing to support small and micro enterprise development, but the Yulin region, banks are currently the basic attitude of private enterprise is not only cost loans, housing loans to individuals are very cautious. Especially in house prices, check out disputes of real estate, bank lending is very careful.

However, in the years 2001 to 2011 period, the attitude of banks is not the case, especially after the initial follow-up coal mining enterprises for loans. "At the time the funds are to gather here, a few large banks sent many people to the business, the bank CEOs also come forward, we know that coal is profiteering." Middle-management Yulin coal enterprises, a state-owned background on the "First Financial Daily" said, At that time the project got a "flagging", bank loans would be fully in place.

In the meantime, a lot of money banks are also different forms, which flows into the private lending.

First, the outflow through the normal channels of personal credit, corporate credit. Guo Xiang told the "First Financial Daily", due to personal borrowing rate is much higher than bank lending rates, so shenmu people buy a house, buy a car, even with the ability to pay the full amount, will choose to apply for bank loans and own funds then take out usury. Some of the more aggressive investors will even housing mortgage to the bank, and then put the money in a small loan company. From the bank perspective, its use for personal loans, loans to private enterprises difficult to control, short-term loans with long, this loan he used more commonly.

Second, through false information, false trading Piandai, and some internal bank staff also took the initiative to help the borrower fraud. A banking industry source told the "First Financial Daily", according to the People's Bank of risk control measures, financial transactions are traces, and are direct hit to the counterparty, but most likely the borrower's counterparty is fiction.

Yulin locals Shi Qiaosen (a pseudonym) to the "First Financial Daily" tells the story of a case. In 2012, one of his friends to do real estate business in the local bank loan of 300 million, but the bank requires collateral and other procedures, the process of handling difficulties. At the time, this branch president out of an idea: the steel market to buy a few tons of steel, to open a number of valuable notes, use this as collateral to bank loans.

"In fact, nothing at all, is a fake formalities." Jonsson said that the name of his friend after 2013 winter "run away" by the police recaptured Yulin, held over 40 days in jail after, because no prosecution, conviction can not be , was finally released. He owes money to the bank, or from a branch president in yet.

Bank capital outflows third way is Governor of the Bank "do private." As mentioned earlier, the way guarantor guarantees, is the most common Yulin private lending risk control. The leadership of the local branch of the bank, the governor, is not only a lot of business acquaintances, also considered to be reputable, prestigious groups.

"2012 is a dividing line, there is no problem before, after a lot of banks led by Liaodao." Yulin area, a branch of the bank's leadership told the "First Financial Daily" in the "universal credit" when bank employees and managers can not help but involved, especially the Bank. Because many companies are banking customers are also president of the "Friends", governor would be happy to act as mediator.

In particular, companies borrow "bridge funding", they often will invite bankers to come forward guarantee. Enterprises in the bank for a loan, the loan from the decentralization of the approval to take some time, according to local practice, this time funding gap, usually by "bridge funding" temporary fill. According to insiders, the latter borrowed "bridge funding" extremely harsh conditions, not only to the approval of bank lending books, bankers signature guarantee, but also monthly interest rate of 9 points in interest to borrow. Is this "bridge financing", caused the collapse of many companies and individuals.

Bank who "do private live" performance is another loan rejection. There Yulin local people on the "First Financial Daily" said that companies looking for bank loans, often need to work with bankers, corporate loans and bankers common use. Such loans 100 million yuan, the enterprise can only get 80 million, another 20 million by the Governor of the Bank at their disposal.

It is through these three methods, a large outflow of funds from the bank, the influx of private lending which, for pushing up the cost of funds played a role in fueling. In the banking side, it accumulated a large amount of bad debts and overdue risk.

The local banking sector on the "First Financial Daily" said that as of the end of June this year, some banks have emerged late in Yulin, which is now stepping up to chase money, or by extension, re-financing to be resolved.

Also worth noting is that when business or personal financial chain crisis, relatives and friends are often faced with multiple creditors, usury, banks. "First Financial Daily" survey found that banks tend to be ranked in the final position of the repayment order.

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