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The state-run Global Times newspaper reported Aug. 5 that Ordos has seen a surge in bad loans coming due, in large part because of problems in the unregulated private lending market. Most of those loans were not for industry, but for real estate development.
Liu Dongmen is a security guard on one such construction site in Ordos, a block of unfinished high-rises that was to be 1,200 apartments. Thus far, only six concrete shells sit atop the land cleared for 20 buildings. The developer, Liu said, ran out of money and workers stopped getting paid. He has not seen a salary himself in more than a month but still reports for work every day.
“There are many places like this in Ordos now,” said Liu. “No one can get loans to finish the construction so everything stopped.
“The developers have left and we’re not sure what is happening next.”
According to reports in Chinese media, the lending bust is related to Ordos’ government officials, some of whom were themselves loaning private funds to developers. Late last year, the investigative magazine Caijing reported that the private lending crisis of eastern China’s Wenzhou city had spread to Ordos. The magazine said at least 20 percent of lending in Ordos was done on the “gray market,” outside of banks and regulation.
Economists have speculated that private lending makes up a substantial percentage of property loans across China, an unregulated market that could create serious economic problems nationwide. The problem has already arrived in Ordos.
Zhou Dewen, head of a business organization in Wenzhou, already home to a private lending crisis, said he believes the private lending market in Ordos is twice that of Wenzhou. Ordos has taken some steps to abate the crisis, he said, but it should serve as a “warning bell” to other cities with a rampant underground lending market.
This summer, city officials in Ordos acted on the crisis by institutionalizing the private loan market. According to new regulations, private individuals can still make loans but now are banned from taking deposits or collateral, “or any other form of illegal fund-raising,” according to the city’s Web site.
So, at the same time Ordos struggles with the trappings of a potential economic crisis, the city is trying to draw the attention of the world to its skills as a Miss World host. But it seems to be hoping its newfound global audience doesn’t explore beyond the evening gowns and tiaras.