China's Default Bombs Haven't Been Defused

Caixin: Why Property Financing Drew Blood in Nanyang
But a retired prosecutor who intentionally plowed his BYD SUV into a group of schoolchildren February 29 in Nanyang, in central China's Henan Province, has exposed a dark side of that city's private financing network.

Ma Gaochao, 60, reportedly lost 12 million yuan in a real estate financing scheme before venting his frustration by steering into the secondary school students at a campus gate. A 16-year-old girl died, and 11 students were injured, two of them seriously.

Ma fled but after being caught told police he had "intentionally" mowed down children to focus a public spotlight on the developer that drained his bank account, police officer Huang Shaofan told Caixin.

...Ma's request was more than well-received. In fact, in addition to probing Daxin, city authorities said that as of April they had launched 100 investigations into allegedly illegal fundraising involving tens of billions of yuan.
More than 100 investigations were launched in April, but the illegal fundraising market collapsed more than a year ago.

Nanyang was covered in depth in March of last year. Housing and Illegal Fundraising Schemes Collapse Across Henan Province
A team leader with the Public Security Bureau's illegal fundraising task force in Nanyang said, "This is only the beginning, I expect next year will be even more serious."

...A 40 year-old investor Li said he invested ¥2,490,000 with Nanyang Moyu Development. Since August, he's been unable to get his money. Everyday he does two things: demand repayment with other investors and fight with his wife. 38 year-old investor Song invested ¥1,700,000 with Moyu and said he quickly realized after investing that he had been duped. Investor Fang took his life savings and the savings of his family. He invested ¥1,000,000, hiding the fact even from his son, and now finds his money is stuck. The three stories are a sample of the more than 3000 investors who are victims of the latest real estate collapse in China.

Around Spring Festival, Moyu, Daxin and Yilin, three investment companies, went broke one after the other. All told more than 10,000 investors are estimated to have lost upwards of ¥1 billion in a still unfolding collapse that has crushed their dreams of striking it rich.
Government officials were supposedly on the ball, having themselves lost money:
The real estate market and private lending market collapsed in Nanyang, Henan. Since August of last year, the market has been in trouble, but in recent months, illegal fundraisers have gone down like a series of dominoes. One investor who lost his money said he estimates half the city participated in various fundraising schemes. One government official said many investors have already died, either by suicide or out of despair, and many government officials have also lost their money
Officials knew all about this problem last year, yet a year later, Mr. Ma drives his car into a group of schoolchildren because he doesn't think the government cares. In April hundreds of investigations are underway.

This is part of an emerging pattern in 2016: old bankruptcy risk and outright default cases are reappearing because they were never solved. Coal mines and steel mills were given loans and subsidies to prop up the local economy. Many local real estate developers used illegal financing and/or high risk financing, with losses concentrated in the local economy. People lose their savings, home values collapse, land sales halt, and GDP plummets if developers stop building, so the solution was whatever keeps the building going. Now in 2016, years of extend and pretend is starting to fray.

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