How China's flood of credit went down the drain

When Beijing reacted to the 2008 financial crisis with a massive stimulus package, businesses in the infrastructure space saw an opportunity to cash in - often in ways that went beyond the official purpose of the cash influx.

Now, five years on, many are learning an important lesson: don't bite off more than you can chew.

Thousands of entrepreneurs took advantage of a flood of easy credit when Beijing announced its 4 trillion yuan (HK$5 trillion) package in late 2008 as Western economies reeled, hit by the collapse of Lehman Brothers and the credit crunch.

The stimulus was focused on infrastructure - but the companies that were eager to scoop up the cash found themselves in trouble three years later when state leaders, fearing that the boom would turn to bust, tightened monetary policies to avoid an economic "hard landing".

"We were sheer victims of the confusing and contradicting policymaking," said Shao Chunlin (not his real name), a steel trader. "It has been a cliche by the government to support the privately-owned companies. Indeed, the policies spoiled our businesses."

While many small and medium-sized enterprises, hobbled by a slump in exports, cried foul at missing out on their share of stimulus cash, steel traders were among the biggest beneficiaries of the state-backed loans.

In 2009, Shao and other steel traders were approached by banks which were actively seeking to extend loans to the private entrepreneurs.