Property

Deadly Daxin

To see many of China’s problems, go to Nanyang

China map w

Nanyang: a city of 1.8 million

Readers of WiC will be aware that China has a problem with bad debt, government corruption, too much housing stock, lousy rates paid on bank savings and disgruntled citizens attacking schools.

But it’s rare to find one case that encapsulates them all.

This month a court in Nanyang in Henan province will deliver its verdict on Ma Gaochao, a retired government official who drove his car into a group of high school teenagers to draw attention to the fraudulent practices of a local real estate developer.

The 60 year-old killed a 16 year-old girl and injured 11 other students when he went on a rampage around a middle school in February. He first drove his SUV through the gates of the school but when he found the yard empty he pointed his vehicle at a group of uniformed students on a nearby crossing.

Ironically Ma was the former prosecutor of Nanyang’s local judiciary. He was charged by his successors with endangering public safety.

Ma’s trial began last month and the court heard that he had lent Daxin Development Company Rmb12 million ($1.82 million) in August 2014. But as it became clear he would not get his interest or principal back, Ma began to entertain the idea of hitting a public target to get the authorities to investigate his case.

“Suicide achieves nothing, but killing others draws big attention,” he wrote in his diary in January, Caixin Weekly reported. In fact, Ma’s target is one of the best schools in Nanyang – one where many local government officials have sent their kids to study.

What transpired from Ma’s trial makes for pretty depressing reading. Daxin was founded in 2010, at a time when Nanyang’s property market was booming. Despite never having completed a project, Daxin won prizes from the Henan government and got positive write-ups in local government-controlled newspapers.

But in 2013 as state banks continued to curb lending to the property sector, Daxin started borrowing from private lenders – many of whom seem to be government officials – via a variety of wealth management products.

The promised returns of 2% a month were far higher than the 1.35% annual deposit rates in bank current accounts. Ma decided to invest all of his pension and borrowed Rmb9 million from a friend to make up the Rmb12 million he lent to Daxin.

The money should have been funnelled into Daxin’s Nanyang real estate projects but by that stage Daxin appeared to be borrowing simply to pay off old debts. According to Caixin Weekly, Daxin required Rmb200 million a year in new funds just to make its interest payments.

And Daxin isn’t the only real estate company in Nanyang to have gotten into trouble. After the state broadcaster CCTV exposed substandard construction practices in 2014, many residential projects were halted and people who had bought apartments on spec were left in limbo. Worse still, many developers faced a liquidity crunch after the scandal. As they failed to repay private lenders, new protests were triggered.

“Protesters trying to get their money back [either homebuyers or investors who had lent cash to developers] are always blocking roads,” a Nanyang resident complained to Caixin Weekly.

As a result, some locals say they understand why Ma took such extreme action, agreeing that it could have been the only way to get the government to take action.

Sadly, there may be some truth to his twisted logic. After the attack Nanyang’s local authorities began investigating Daxin for running a Ponzi scheme. As of April, they have been investigating at least 100 illegal fundraising cases.

Elsewhere there was no sympathy.  “It is unbelievable that a man who was an official in the prosecutor’s department turned into an outlaw who took violent revenge on society. But his immoderate desire for wealth made him uncontrollable,” concluded the Qianjiang Evening news.

Ma has since shown remorse and pleaded guilty.


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