"Debt auction" frenzy: under the guise of auctions, high-yield funds flood into city investment-type fixed-income products

Ask AI · Why is debt auction becoming popular against the backdrop of strict regulatory oversight?

Cailian Press, May 11th (Reporter Zhao Yibo, Guo Songqiao) A financial product called debt auction has become unusually popular in the financing market this year.

“Now most fixed-term projects use debt auctions,” a sales representative mentioned, a district-level urban investment project in Shaanxi raised 100 million yuan, and the product was sold out within a week, with an expected return of 6%.

The so-called debt auction, or debt claim auction financing, refers to a financing method where the urban investment company, as the borrower, transfers its held debt assets through an auction company by listing them for sale, while promising to buy back at an agreed price after a certain period.

A senior industry practitioner in fixed-term financing said that debt auctions were relatively niche a few years ago, but now they have become the mainstream form of urban investment fixed-term financing.

Shenzhen lawyer Tian Shangzhi, who specializes in criminal defense, finance, and corporate law, told Cailian Press that after regulatory authorities banned the operation of securities exchanges, in terms of transaction structure, auction companies essentially took on the role and positioning of securities exchanges. That is, using debt auctions and debt transfer in name is essentially a form of public issuance of debt.

Tian Shangzhi pointed out that debt transfer or debt auction in name is a civil act, not the issuance of financial products. The original intention was to evade strict financial regulation. These products must verify whether the underlying assets are genuine. Previously, many products involved fictitious debts, related guarantees, invalid debts, and undisclosed information. Investors purchasing related financial management products face risks.

In the face of multiple government departments repeatedly issuing strict bans on illegal financing, significantly compressing fixed-term financing, and cracking down on non-asset-backed financing, why has debt auction continued to evolve and become the “mainstream” in some regional urban investment fixed-term projects? To this end, Cailian Press conducted an investigation.

The Rise of Debt Auctions

From a transaction process perspective, the main participants in debt auctions include the financing party (urban investment), product managers, sales parties, auction companies, and investors.

A senior fixed-term financing industry insider said that for urban investment companies, they need to find a legal financing tool, “find channels, find funds.” (Debt auction) repurchase replaces loan agreements or targeted financing fundraising agreements. Debt transfer is not a financial product and is therefore not regulated by authorities, “bypassing regulation.”

Cailian Press obtained financing materials from sales parties, revealing that these products mostly have terms of 1 to 2 years, with expected yields as low as 6%, and as high as 9% or more. The issuers are mainly district or county-level urban investment companies, covering regions such as Henan, Hebei, Guangxi, Jiangsu, Shaanxi, and Hebei.

An industry professional announced when taking on debt auction projects, “Now, non-standard funds are almost impossible to find, and debt auctions are almost the only reliable source of funds. Instead of struggling to find and chase after funds, it’s better to do debt auctions steadily.”

Because a significant portion of financing in domestic urban investment projects is handled by construction parties, they have also become major participants in debt auctions.

Recently, Cailian Press learned from a construction party that, by showing regional and fundraising amount information, they could quickly produce a debt auction plan, with loan disbursement within 7 days, an annualized interest rate of 13% to 15%, platform fees around 7%, and the rest subsidized by the construction party.

They also stated that they only do 100% urban investment projects, with no initial costs, and can sign betting agreements to ensure fundraising cycles. They require: the financing entity must be a city investment platform, the guarantee entity must be a city investment platform; board resolutions from the financing and guarantee entities are required.

According to the senior fixed-term financing industry insider, special attention should be paid to FEPC (Total Contracting Mode of Financing), which uses interest subsidies for financing. If the project encounters risks, the default rate is extremely high.

Because the product interest rates are much higher than bonds or other fixed-income financial products, they are very attractive to investors.

“Currently, the main buyers of debt auctions are three types of people: one is local people who understand the situation and know how big the risks are and are willing to invest for interest; the second is old clients from outside regions; the third is inexperienced outsiders and the elderly, who can’t resist temptation and invest just because it’s a state-owned enterprise project,” said a lawyer who has long handled fixed-term cases, to Cailian Press. In reality, there are fewer ordinary local residents. “They also know the risks are high, and if there’s a repayment problem, it will be very stressful for local residents to seek recourse.”

The sales party mentioned that a debt auction product in a certain county-level urban investment in Henan had a quota of 50 million yuan, and it was sold out within a week.

Cailian Press learned from the product description that the expected annual return rate is 6%, and the main entity has good qualifications, being the largest urban investment entity in the area, with assets close to 10 billion yuan.

The “Transformation” of Auction Companies

Debt auctions are not new. In September 2023, the Shandong Financial Bureau issued a warning titled “Risk Reminder on Illegal Fundraising Under the Name of Auction,” stating that some auction companies, without proper approval from relevant departments, promised guaranteed high returns, and engaged in illegal fundraising or disguised assisting of financing entities to sell financial products, posing significant illegal fundraising risks.

In October 2025, the Anhui Suzhou Finance Bureau issued a typical case of illegal fundraising, showing that some scams used “state-owned assets” and “auction” as endorsements, disguising compliance to deceive the public into investing. The defendants were found to illegally absorb public deposits, disturb financial order, with large amounts involved, constituting the crime of illegal absorption of public deposits.

Under such high pressure, how do auction companies continue to operate illegally? To explore this, Cailian Press interviewed several auction companies involved in debt auctions.

In July 2023, media reports indicated that a certain city investment in Henan, as the issuer and financing entity, used its held debt assets as auction targets, transferring them through Beijing Yipai Auction Co., Ltd. (hereinafter “Beijing Yipai”). Past investors became “bidders” here.

In April this year, when asked about debt auction business, Beijing Yipai’s responsible person told Cailian Press that their website had already been shut down.

However, while reviewing recent debt auction materials from a city investment in Guangxi, Cailian Press unexpectedly saw that “Beijing Yipai” was still listed, with a debt holder entrusting the transfer of 60 million yuan of debt assets via an online auction platform. When asked about this, Beijing Yipai responded, “We haven’t held any auctions, how could we transfer debt assets through auctions?”

While reviewing other debt auction project financing materials, Cailian Press verified with multiple companies including Hainan Huirong Auction Co., Ltd. (hereinafter “Hainan Huirong”), Zhongpai Online International Auction Hubei Co., Ltd. (“Zhongpai Hubei”), and Zhongchuang Auction Co., Ltd.

Recently, Cailian Press visited the registered addresses of Hainan Huirong and Zhongchuang Auction but found no auction companies present. Business registration data shows that Hainan Huirong was listed as abnormal in January this year due to inability to contact the registered address or business premises.

“The company has changed its address,” a person claiming to be from Hainan Huirong Auction contacted Cailian Press on April 14 to clarify that the “Henan city investment debt transfer” project had been canceled before it even started.

A cancellation letter provided by the other party showed that the applicant was the aforementioned Henan county investment company, and the reason for cancellation was “our funds have arrived.”

When asked whether Hainan Huirong was still conducting other debt transfer businesses, the other party did not respond.

Among the many auction companies appearing in debt auction materials, Zhongpai Online International Auction Hubei is one of the few established auction firms. When asked whether they participated in the Henan city investment debt project, the company’s responsible person said, “We had some contact but didn’t reach an agreement.”

The “Zhongchuang Auction,” which has no fixed address, has complex behind-the-scenes relationships. Business registration shows its shareholder is Guangxi Zhongfu Standard Technology Research Co., Ltd., which also owns Guangxi Guohe Information Consulting Co., Ltd. (hereinafter “Guangxi Guohe”), formerly known as Guangxi Guohe Asset Registration Service Co., Ltd.

In April 2024, the Qinzhou Finance Bureau issued a risk reminder about “pseudo-securities exchanges” operating illegally. Guangxi Guohe was listed among pseudo-securities exchanges. A court document shows that in a case involving a certain debt that had payment difficulties and entered the trial stage, Guohe was named as a defendant, providing services such as listing, transfer information, transaction inquiry, and account settlement management for the listed financial assets.

Reconstruction of Debt Auction Process: Lawyers: Faster fundraising, greater risks

Some auction companies are untraceable, some deny involvement, and some have complex relationships. When Cailian Press asked multiple sales parties about their debt auction products, they all revealed that although it’s called debt auction, the process has essentially ceased to exist in substance.

“It’s not a real auction,” one sales representative said. For fundraising, they definitely need to publish information, but instead of going through an auction house, they “register product information, and old clients pay directly into the urban investment fundraising account—they don’t handle the funds.”

Why do auction companies no longer conduct substantive auctions? Jiang Zhanhua, a lawyer at Beijing Zhongjian (Zhengzhou) Law Firm, told Cailian Press that according to the “Auction Law of the People’s Republic of China,” auctions require publishing auction notices and conducting open bidding. These companies might be doing this to avoid transparency and reduce their own risks. But if criminal cases arise, they will have to prove their innocence. Moreover, non-compliant debt auctions, if problems occur, could face civil compensation and administrative penalties.

The responsible person from Beijing Yipai emphasized to Cailian Press that all documents signed require cooperation parties not to conduct illegal financing activities through auctions.

A letter of commitment from the urban investment company to Beijing Yipai states that regardless of why the debt arose, it complies with relevant laws and regulations, involves no fraud, collusion, forgery, or illegal financing, and will not harm the legal rights of the buyer.

Cailian Press noticed that many promotional posters in debt auction materials prominently advertise the issuer’s state-owned enterprise status and bank account details.

Once the auction process disappears and the auction company’s own risks are reduced, the debt auction process is also simplified and accelerated.

Tian Shangzhi told Cailian Press that although investors directly transfer funds to the financing party, and it’s still called “debt claim auction,” the core is to use debt transfer civil acts to conceal illegalities, evade auction law regulation, and disguise illegal fundraising as “debt claim auction” or “debt transfer,” making fundraising faster but increasing risks.

In fact, during visits, when asked to show company information, sales personnel of debt auction products were very cautious and refused.

A former fixed-term industry practitioner believed that compared to past open debt auctions, the current situation is more serious. The entire transaction process is behind the scenes, with urban investment hidden in the background, and the actual responsible parties being the management and sales sides.

“Sales will say funds go directly to the urban investment, but behind the scenes, it’s easier to fabricate targets and debts, even fake urban investments or false financing needs,” the former industry insider said.

(Reporter Zhao Yibo, Guo Songqiao)