A sign in parchment above the locked door of Shanxi Platinum Assemblage Investment, written in calligraphy, reads “Honesty is fundamental”. Until recently a police notice below it directed investors to report to the local station to submit evidence against the company.
In Taiyuan, capital of the central Chinese province of Shanxi, investors have rushed to branches of Platinum Assemblage in recent days as word spread that the company was unable to meet payouts on maturing investment products that had offered annual interest rates of 14-18 per cent. Meanwhile, rumours swirled that executives had fled and branches in some cities had shut their doors.
The incident highlights financial risks lurking in the outer margins of China’s shadow banking system, where high-yielding wealth management products blur into grey-market lending. A financial system in which the government refuses to tolerate defaults has also encouraged moral hazard among investors by creating an expectation that even risky credit carries an implicit guarantee.