Lending has collapsed here in northern Shaanxi Province, where it was particularly speculative and frenzied, and where the local coal industry has also been crippled by steeply falling prices.

As some borrowers began defaulting early this year, worried lenders in the informal sector raised interest rates for small and medium-size businesses, previously 25 to 40 percent a year, to as much as 125 percent a year. The increase set off a much broader wave of defaults in recent weeks, as owners found themselves unable to repay billions of dollars in bad debts, many of them handwritten and hard to enforce in court.

“Almost no one will give you a loan,” said a construction executive who gave only his surname, Xie, as he stood next to his white Toyota Land Cruiser outside a project that had been halted.

Although changes are being slowly introduced, state-owned banks have long been allowed to lend only at low, regulated rates barely above the inflation rate, with the total value of loans controlled by quarterly quotas. All over China, these loans go overwhelmingly to large state-owned businesses, government officials and politically connected individuals, who then relend the money at much higher interest rates to small and medium-size businesses in the private sector that need money to grow.

Liu Linfei, a government official from nearby Yulin, stood on a Shenmu street corner in a T-shirt and shorts on a recent weekend afternoon, outside two high-rise hotels where construction had been stopped just before the windows could be installed. He said he had borrowed 600,000 renminbi, almost $100,000, from a bank shortly before the collapse, at an interest rate of 4.1 percent a year.

Mr. Liu then lent the cash to moneylenders here at an interest rate of 10.4 percent, planning to pocket the difference.