Vicious Cycle Seen as Ore Pile Evokes Steel Bust: China Credit

China’s record imports of iron ore and copper, driven by traders who use them as loan collateral, risk repeating the vicious cycle of repayment difficulties and falling prices already seen in the steel-trading market.

Xiao Jiashou, known as the “steel-trading king” in Shanghai, had his assets frozen as China Minsheng Banking Corp. sues for money owed. Lenders seeking repayment are finding irregularities, including the same pile of materials used as collateral for multiple borrowings, China International Capital Corp. said. Money-market costs have surged, with the benchmark three-month Shanghai Interbank Borrowing rate jumping to 5.6 percent yesterday from 3.89 percent in June 2013.