huangthomas

Is There Tightness in China's Money Market?

The existence of Banks in China is a more recent event, no more than 100-year. How Chinese conduct their "banking (saving and borrowing)" for the last 5,000 year for short term cash needs or to fund private bussiness? The most commonly used method is "mutual assistance club". The "Head of Club", so-called huitou = hui (club) + tou (head). Let say you have a club of 30 members put together by the head of the club, this is how it works. He will select 30 members (including himself) from his close friends and relatives who have fair to good credit records and can afford to have monthly savings of $1,000. Each members are committed to saving 1,000 per month for the next 30 month (this is the number of the club memebers including the head of the club). The first month, each submit 1,000 with a total of $30,000. The head of the club take $30,000 ($1,000 is his own money) and every month thereafter, he returns $1,000 to the club. He get to use $30,00 interest free, which is the reward for his effort to organize and runs the club. On the 2nd month, there are $30,000 on the table, which is open for bid (monthly interest). The highest bidder, say 2 to 5%, will take $30,000 and pay back $1,000 + 2 to 5% interest rate he committed, for the next 29 month. Thus the highest bidder get the loan and payback each month $1,000 plus the interest he promised to pay. This type of club is the way the families solve their short term cash need in the old society or earning interest on their saving without banks or credit cards. The reasons this is still going on is relatively high interest rate for the "savers" and may be lower interest rate for the borrowers compared with credit cards or personal loan, without telling what the money will be used for, from banks. This is why they are also referred to as "mutual assistance club". Once in a while some member may obtain the loan and deposit in Qian Zhuang to earn extr-interest. Next on DangPu & KaoLiDai (Qian Zhuang)