Because it covers a wide range of funds, not only involving the government, banks and various trust funds, but also involving almost everyone involved in the investment and financing in the later period, and also because the whole process is typical: the three-dimensional drama of the collapse of investment and financing of large-scale economic projects led by the contemporary China government.
I don't know the details. According to various reports, I estimate that it is divided into several stages:
1. First of all, various local natural resources were discovered in previous years, and in the process of economic growth based on them in the following years, the government's fiscal revenue increased substantially-the income of public officials within the system increased, and local industries related to various resources developed-the income of employees outside the relevant social system increased, the overall income of society increased substantially, and consumption increased ... This stage is an extremely strong stage of regional economic performance and capital formation.
2. The second stage is when the local government sees the existing economic achievements (overall income increase, capital accumulation), feels dissatisfied with the existing achievements, thinks it can catch up with the Premier League, and begins to make plans for HTC-that is, the government-led Great Leap Forward-that is, investment plus leverage. Simply put, no matter how rich the government is, it is only fiscal revenue and higher-level funding. To make the Great Leap Forward and build a city, we have to use all kinds of market funds, so it must be bank funds and various trusts in the early stage. At this stage, because everyone is in the rising stage, we only see the rise in the prices of various fixed assets. They don't know that the rise in asset prices is only because everyone puts money into buying, and everyone is buying because they only see the beautiful scenery ahead, and everyone is looking forward to it. Therefore, at this stage, what the local people experienced was-the government built the city-the compensation for demolition-money-buying a new house-and the house price rose. ....
3. The third stage is the whole investment and construction process, when funds are tight, the bank loan period expires and some loans are not renewed. At this time, various financing entities represented by local governments began to specialize in local and foreign trust funds. As early as before, the accumulation of local private capital in the process of economic rise was also looking for high returns, which just met the investment needs of the local government. The typical phenomenon at this stage is that microfinance, investment and financing, and guarantee companies in various places have begun to flood, and the interest rate of private lending has risen-all people have started to borrow, and all families have engaged in it, and their own money has been taken out of the bank to microfinance companies-microfinance companies (opened by local civil servants) to participate in infrastructure enterprises-and the government's fiscal revenue and financing are insufficient to pay for construction funds. Start paying all kinds of construction enterprises with land-the cash flow of enterprises is tight-the debts with the financier begin to default-and then use land pledge to finance new capital and pay off old debts-the land price drops (in this step, the asset price drops), the repayment ability and financing ability both drop, but the debt burden remains unchanged, and it is increasing-and when the capital price rises, the price of fixed assets will definitely start to fall. Real estate prices began to decline, but also because the early real estate prices overdrawn too much. Because the overall market funds began to tighten, some real estate debtors began to sell their properties and realize them-the whole vicious circle of debt began to spiral down!
4. The fourth stage is: Due to the above reasons, these enterprises that participated in the government-led city-building movement began to be insolvent, and large-scale debt defaults occurred. Just watch the news yourself. In this case and that case, many people ran away with 10 billion. In the process of this end, the decline in corporate solvency is also an objective reason. After the financial crisis in 2008, the world commodity prices plummeted, and the prices of soil, gas, sheep and coal, especially coal, on which Ordos depended for its survival fell sharply. Generally speaking, from the perspective of capital flow, the government owes money to banks and construction units-construction units owe money to various lenders (many local lenders are public servants with good reputation)-and lenders owe money to relatives and friends (local owners). The worst mess of local governments in the world is that local people sell bills, which is also what happened in China. Erdos gave a perfect interpretation.