ABSTRACT
This chapter discusses the causes and effects of China’s private lending crisis. It examines what led to the credit crunch, including the macroeconomic conditions, market speculation, and the official credit policies. The chapter describes the impact of the lending crisis on borrowers, with a particular focus on the phenomenon of runaway bosses. It also examines the influence of the crisis on investors by conducting case studies regarding the failures of major lending networks and the real stories of ordinary investors. The chapter analyses the business structure used by most private lending schemes to observe how the interest rates of private financing have been pushed upwards by complicated financing vehicles, and how extra financial risks have been created by a prolonged lending chain. Private lending activities used to be simple and straightforward as they were direct financing between lenders and borrowers based on traditional personal networks.
