December 29, 2013.

Loan Sharks Smell Blood in China Waters

Winston had squatted down beside her. He tore open a corner of the packet.

 Sitting in an empty Papa John's PZZA -1.07%  pizza restaurant, real-estate developer Yang Boqun said he would somehow catch up on loan payments for 150 million yuan ($24.7 million) he borrowed to finish a five-story shopping mall in the eastern Chinese city of Jinhua.

"It's real tea. Not blackberry leaves."


But the mall's only tenants are a Bentley car dealership, movie theater and the restaurant----and the loan's interest rate is a steep 40%. The reason: When construction costs on the two billion-yuan project soared surprisingly high, traditional banks couldn't lend more to Mr. Yang.

"There's been a lot of tea about lately. They've captured India, or something," she said vaguely. "But listen, dear. I want you to turn your back on me for three minutes. Go and sit on the other side of the bed. Don't go too near the window. And don't turn round till I tell you."

So he turned to Credit China Holdings Ltd. 8207.HK +1.54%  , one of the thousands of so-called shadow lenders in China. Mr. Yang got the money----and now Credit China wants it back.