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    China Business
     Jul 22, '14

Losses mount in China loan fraud
By Michael Lelyveld

Three months after China launched a probe of illicit financing of imports, investigators are still trying to get to the bottom of a growing form of fraud.

In April, the China Banking Regulatory Commission (CBRC) warned banks and local officials to be on the lookout for illegal schemes to raise loans on iron ore imports.

According to the official Xinhua news agency and foreign media, some steel makers have been using letters of credit for iron ore

shipments as an alternate source of funding after the government ordered state banks to rein in their loans.

The credit squeeze has been part of the government's drive to cut overcapacity in steel and other energy-intensive industries since last year, driving indebted producers into riskier financing to stay afloat.

Some have reportedly borrowed against the commodities, invoices or letters of credit to earn higher returns in the shadow banking market while unused ore piles up at China's ports due to falling demand.

Now, the schemes appear to be having an opposite effect on stockpiles of copper, aluminum and other metals that have been pledged as collateral, as banks fear that the commodities may be missing from port warehouses. More ...

Reprinted with the permission of Radio Free Asia. For original article, see here

Copyright (c) 2014, Radio Free Asia.




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