Fool's Gold Behind Beijing Loan Guarantees

The domino effect began in January when bankers reacted to rumors of a liquidity crunch at one of Beijing's most prominent loan-guarantee firms, Zhongdan Investment Credit Guarantee Co. Ltd.

Several banks that cooperated with Zhongdan smelled trouble and started calling loans they had issued to companies backed by the firm.

At the time, Zhongdan counted more than 300 clients and 3.3 billion yuan worth of loan guarantee contracts, according to the firm's President Liu Hui.