SHANGHAI: The prospect of cashing in on the stock market boom is sending more
people to high-interest loan "sharks" in search of a quick injection of capital.
Last year the Shanghai Composite Index, the widely watched indicator for the
Chinese mainland market, increased 130 percent, and it has grown 41 percent so
far this year.
One private finance agency insider, who would use only his surname Wang, said
business has soared since the market truly began picking up late last year.
Wang's agency charges a 3 percent monthly interest rate for every cent they
For anyone who wants more than 150,000 yuan ($19,430), a guarantee of fixed
assets will be needed something that has not intimidated investors eyeing a
"Many of the lenders told me they needed the money to invest in the stock
market," Wang said.
"The market is sending investors, who want more profit from the market, to
private financing agencies like ours."
And some agencies have gone to public notary services to protect their
rights, according to officials at the No 2 Notary Office of Huangpu District in
Zhang Wen, the director of the office, said that the agencies normally signed
two agreements with lenders.
"One stipulates the amount of the loan and the legitimate interest," she
According to Chinese law, the interest rate of any private financing cannot
be more than four times that of a local bank.
"They will have this agreement notarized," Zhang said.
And the second agreement stipulates that a fixed amount of agreed interest
will be deduced from the loan first.
"For example, if the second agreement says that 50,000 yuan, as the interest,
will be deduced from a 300,000 yuan loan, the lender will actually receive
250,000 yuan only," she said.
"And then the lender will have to pay back the 300,000 yuan loan and interest
according to the first notarized agreement.
"In this way, the lender will have to pay a lot more interest," Zhang said,
before warning people against using these agencies,
Wu Dong, a local lawyer, said that people can quickly find themselves mired
in heavy debt.
"We saw people borrowing from loan sharks to invest in the stock market
during the 1990s' boom," he said.
"And many of them ended up in debt and lawsuits."