Caixin OnlineFinance & EconomicsTop Stories Finance Domino Risk Grips Zhejiang Bankers, Borrowers
06.26.2012 18:59

Domino Risk Grips Zhejiang Bankers, Borrowers

A developer's collapse exposed banks to the dangers of reciprocal loan guarantees common in coastal province
By staff reporters Zhang Yuzhe, Zhang Bing, Shen Hu, Wen Xiu and Zheng Fei

(Wenzhou) – The Zhejiang government is scrambling to settle a credit crisis threatening banks and financial institutions that altogether issued about 6 billion yuan in loans to scores of companies.

Sources say 62 companies, from furniture makers to import-export traders, have been affected to varying extents by the collapse late last year of Hangzhou-based property developer Tianyu Construction Co. Ltd.

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The companies were financially linked to Tianyu through a province-wide, reciprocal loan-guarantee network. Tianyu's sudden failure raised the specter of a domino effect of defaults taking down every network participant and devastating their lenders.

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