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A train runs through the Whistling Dune Bay in Dalad Qi in Ordos, in northern China's Inner Mongolia Autonomous Region. Located to the east of Kubuqi Desert, the Whistling Dune Bay was developed as a tourist destination since 1984. After years of improvement, it became a landmark for tourism industry of the Inner Mongolia Autonomous Region. Photo: Xinhua

Liquidity is tight now in mainland China, due to the recent crackdown on profligate lending and graft. All eyes have turned to lending for the quick gain, not the long game. Connections are all that matters.

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The intricate network that branched out from China Huarong Asset Management, one of the country’s state-owned bad debt managers, is a classic case.

Since renaming a listed shell in 2015 as Huarong International Financial, the company has fed the unit HK$11.6 billion in shareholder’s loans and various letters of comfort, enough for the subsidiary to chalk up HK$5.6 billion (US$824 million) of loans by the end of 2016.

Huarong International then lent the money in different forms – term loan, equity investment with put option, and convertible bonds.

Within a year, its lending and investment ballooned 10 times to HK$13.8 billion, resulting in a 410% rise in profit to HK$525 million, according to its 2016 report.

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What other business could have made such stellar performance within such a short period of time? Of course, the game didn’t stop here.

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