Yangzijiang

Yangzijiang: Local govt in Wenzhou city has announced on 28 Sep a set of new regulation on shadow bank lending (or private lending), including that private loan rates cannot exceed 4x China’s benchmark interest rate.

Amid a credit clampdown on banks in China, many cash-strapped firms have turned to a thriving informal lending market, which charge exorbitant monthly interest rates, leading to a string of defaults where the factory owners have gone into hiding to avoid repaying loans.

A growing number of Chinese companies have gone into this non-bank financing business in order to seek higher returns for their excess cash. Among them, YZJ has invested Rmb10b in “held-to-maturity” assets, which generated about 27% of its 2Q11 pre-tax profits. With its huge exposure, YZJ risks impairing its earnings or wiping out 92% of its equity, should widespread defaults lead to a collapse of this financing system.