Some China Credit Unions Fail to Pay Back Depositors, Radio Says

Some rural credit unions set up in eastern China as part of trials designed to improve financial services in the countryside have been unable to pay depositors since the start of 2013, China National Radio reported.

The so-called farmers’ financial cooperatives were part of a pilot program in rural areas administered by the city of Yancheng in the eastern province of Jiangsu, the state-owned broadcaster reported yesterday. Some of the cooperatives’ managers misused funds by lending to property projects, China National Radio reported, citing Yu Longzhuang, an official with Yancheng’s rural commission. The official Xinhua News Agency reported that some of Yancheng’s rural farmers’ financial cooperatives are facing funding abnormalities.

Yancheng’s rural credit unions add to signs of financial stress in the world’s second-largest economy, which this week reported growth slowed in the fourth quarter to 7.7 percent from 7.8 percent in the previous three-month period. About 20 investors in a trust product distributed by Industrial & Commercial Bank of China Ltd. met with the lender’s officials in Shanghai yesterday demanding their money amid concerns of a default.

Reporting by state-owned media on Yancheng’s rural credit unions “may suggest that the official stance on financial risks is to acknowledge the problem and strengthen regulations to contain such risks,” Zhang Zhiwei, the chief China economist for Nomura Holdings Inc. in Hong Kong, wrote in note yesterday.

Farmers’ financial cooperatives are only allowed to take deposits from their members and don’t have access to lending facilities from the central bank, according to Zhang. The cooperatives were introduced in 2006, with Yancheng made a pilot city for the initiative, he wrote.

The unpaid deposits may involve 2,000 households, China National Radio reported, citing Yu. The amount may be “hundreds of millions” of yuan, it reported, citing estimates by depositors it interviewed.

— With assistance by Xin Zhou

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