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Triangular debt is back

In the 1980s and even the 1990s, China struggled with increasing amounts of chain debts. The liquidity in the market place was tight all the time, despite 30% and even 50% annual growth of credit. The banks had sustained more than 100% loan-deposit ratios for about a decade, and they had always relied on the central bank as the lender of the first resort (not the last).
 
In those years, triangular debt was a term that appeared in the media more often the Communist Party.
 
Alas. We are now back to that era. Yesterday, I visited a friend’s company in Shanghai and were greeted by three uniformed guards at the entrance to his office. I learned later that some disgruntled customers had protested outside his office to demand their money back. Are the guards going to be a permanent fixture to your office? “I hope not. But they have been here for a few months now”.
 
Large numbers of non-bank financial institutions have been crippled by unpaid debts, and the court process can drag on for years. One industrial company in which I personally invested is now suing 14 of their corporate customers. “Enough is enough. They are years behind their debts,” complained the general manager. In May alone, 57 peer-to-peer lenders shut shop, though for somewhat different reasons.
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