Police rush an elderly man to hospital who, heavily in debt, had jumped from Erlangshan Bridge in an attempt to commit suicide. Photo: Zhou Pinglang/Tencent News

Coal-rich Shenmu county, in Northwest China's Shaanxi Province, has been haunted by the bursting of the real estate bubble and the private lending frenzy.

Shadow banking and private lending started to sweep the county since 2006. When banks gradually tightened their lending to private enterprises, businesses increasingly resorted to securing funds from local residents who had made their fortunes in the coal industry and wanted to invest in private businesses for high monthly returns of up to 3.5 percent.

Most of the money was put back into the coal industry, which then declined due to China's efforts to switch to clean energy and decreasing coal prices. A typical scheme involved fund-raisers borrowing money from individuals in the name of investing in coal mines that didn't exist. When the business owners became tangled in their chain of debt and were unable to source more funds, they discovered they were unable to repay the loans and the exorbitant interest rates. In response, many simply fled.

Large amounts of money were also invested in much more real estate than the actual market size warranted, pushing property prices to irrational levels. However, the bubble soon burst, sending property prices crashing.

As of July, the local court in Shenmu had heard 2,771 cases of private lending. One of the biggest cases was the disappearance of Zhang Xiaochang, who fled with more than 10 billion yuan ($1.64 billion) that he had borrowed from hundreds of private investors.

As a result, thousands of families saw millions of yuan in savings evaporate, and are still waiting for it to be miraculously returned.

Global Times

The once booming real estate industry in Shenmu now at a standstill. Photo: Zhou Pinglang/Tencent News

Liu Wenjun, 61, holds a receipt for the 2.1 million yuan he lent to Zhang Xiaochang. Photo: Zhou Pinglang/Tencent News

 

An elderly couple in their 70s displays the receipt for the 80,000 yuan they had lent to Zhang Xiaochang, who fled to escape the debt. Photo: Zhou Pinglang/Tencent News

 

Nearly 100 construction workers try to claim their unpaid salaries from a real estate developer after the property market crashed. Photo: Zhou Pinglang/Tencent News

 

Construction workers rest in pipes. Photo: Zhou Pinglang/Tencent News