Xi‘an Credit Guarantee Firms Go Bust

Several non-financial credit guarantee firms (non-financial refers to firms that have not obtained a license to operate as a financial company) collapsed in Xi'an recently and their bosses have fled.

The non-financial guarantee industry in Xi’an is a desolate scene. Funding strands break, the bosses of five of the companies fled, and many investors suffered heavy losses, causing anxiety among people and drawing the attention of authorities. At least ten firms are involved in a payment crisis and at least 300 million yuan is at stake, with as much as 100 million lost.

Many firms hold negative views of the situation. For example, one boss of a guarantee company went to police, admitted that there was a crisis of confidence, a payment crisis, and asked to close his company. Investors money is with other firms and he can do nothing. But the police refused his request and said that the police cannot get involved if there is no case report.

One of the insiders told the reporter that companies are responding to the crisis differently: some are raising money to ward off a payment crisis; other firms published an announcement stating the investment funds will be gradually repaid, but the firm is shutting other operations; others still to believe that there is a narrow chance of a government bailout.

Many firms operating in Xi'an came from Henan province in recent years and were engaged in illegal fundraising, using high interest rates as bait. Older Xi'an credit guarantee firms have a license to operate as a financial company and mostly did traditional business such as guarantees on mortgages and car loans. The Henan companies were mainly raising cash from private investors and making high interest loans to private parties. Police are now investigating the situation and new licenses for non-financial firms have been suspended until the matter is sorted out.

The main reason for the present situation in Xi'an is that most of the money went into the real estate industry. This year's downturn in home prices has developers struggling and defaulting on debt. Also, some bosses fled simply because they're crooks who squandered investors money. If history is any guide, losses may end up being less than expected, but the number of firms it touches may climb in the coming weeks and months.

East Money: 西安担保业严冬 多家非融资性担保公司崩盘
Guhantai: 陕西投资担保企业连续崩盘 数以干计投资人受损

Prior coverage of credit guarantee crises.

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