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.