31 March 2015

The Coming China Crisis

Spring 2015

On the morning of September 8, 2016, the Wenzhou Credit Trust, one of the many trust companies in China, went into default. The firm discontinued all new lending and suspended redemption and interest payments on its trust certificates, the equivalent of deposits made by its customers.

At the time, the failure didn’t seem all that unusual. A handful of trust companies—“shadow lenders” that make loans, often the riskiest ones, outside of China’s conventional banks—had done the same in recent years. But within a week, another trust company went into default, and the following week, so did seven more. Angry trust-certificate holders protested in Wenzhou and Chongqing but were quelled by police. Those protests hardly seemed noteworthy at first—for years, there had been hundreds of protests and disturbances across China—but it turned out they presaged something new.

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