China Banks Said to Have $3.2 Billion Exposure in Qingdao Probe

Chinese banks have about 20 billion yuan ($3.2 billion) of exposure to companies at the center of a loan fraud probe in the eastern city of Qingdao, two government officials said today, citing the latest findings of an official investigation.

Bank of Communications Co., China’s fifth-biggest lender, has also filed a lawsuit against the companies, Dezheng Resources and Decheng Mining, said the officials, who asked not to be identified because they aren’t authorized to speak publicly. Decheng Mining pledged the same metals stockpile three times over to obtain more than 2.7 billion yuan of loans, a person briefed on the matter said earlier this month, citing preliminary findings of an official investigation.

Foreign and local banks are reexamining loans linked to metals at Qingdao amid concerns that lending risks are rising in China, where traders pledge commodities from iron ore to rubber as collateral for financing.

Standard Chartered Plc is suing Singaporean national Chen Jihong, owner of Decheng Mining, for $35.6 million, according to a July 8 lawsuit filed at Hong Kong’s High Court. Standard Bank Group Ltd. has begun legal proceedings to “protect its position” on aluminum held in bonded Qingdao warehouses equivalent to $170 million, the company said July 10.

A Shanghai-based press officer for Bank of Communications declined to comment and nobody answered two calls to Decheng Mining and Dezheng Resources today. Chinese financial magazine Caixin reported yesterday that Dezheng Resources and its more than 60 affiliates borrowed about 20 billion yuan from banks.

Dwindling Stockpiles

Bank of China Ltd., Export-Import Bank of China, China Minsheng Banking Corp. and 15 other Chinese banks have lent a total of about 14.8 billion yuan to Chen Jihong and his companies, a person briefed on the matter said on July 3, citing preliminary findings of an official investigation.

Commodities financing deals, which Goldman Sachs Group Inc. estimates are worth as much as $160 billion in China, have surged in recent years as steps by the Chinese government to rein in credit raised companies’ borrowing costs.

Copper stockpiles in bonded warehouses in China, the world’s biggest consumer, are falling as the probe accelerated selling partly because banks were unwilling to extend financing deals, a Bloomberg News survey showed today.

Chen has been detained and the city-state’s foreign ministry is providing consular assistance to him and his family, the ministry said June 11. He is also involved in a separate inquiry in northwestern Gansu province, two bankers assisting with the probe told Bloomberg last month.

To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net; Alfred Cang in Shanghai at acang@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net Sungwoo Park

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