China Default Tied to Asset-Management Product Flags Risks

Updated on
  • Shandong Longlive failed to repay loans linked to a product
  • Regulators stepped up efforts to break implicit guarantees

A Chinese biotech company defaulted on a loan tied to an asset-management product, after the nation’s regulators last month moved to tighten supervision and break an implicit guarantee that’s driven investment into such vehicles.

Shandong Longlive Bio-technology Co. failed to repay the first 138 million yuan ($20.9 million) installment on a 227 million yuan loan from Zhonghai Trust Co. on Dec. 7, according to a statement to the Shenzhen Stock Exchange. The majority of the missed payment was packaged into an asset-management product issued by Datong Securities Co.

Chinese President Xi Jinping and his top economic deputies have vowed to make controlling financial risks their foremost priority, a pledge renewed at the Communist Party’s twice-a-decade leadership congress in October.

As part of the effort to clamp down on risk, the People’s Bank of China and other financial regulators said last month that financial institutions should offer yields based on the net asset value of the products they issue, instead of offering a guaranteed principal repayment or rate of return.

Read more about China’s move to rein in risks from asset-management products

In its statement, Shandong Longlive referred to an online media report which it didn’t identify saying the asset-management product had been sold over the platform run by online lender Lufax Holding. The report is “basically true,” the Shandong Longlive statement said.

“The scale of the whole Longlive incident isn’t very big,” said Lyu Pin, a Beijing-based analyst at Citic Securities Co. “The reason why it’s gaining so much attention is that it has to do with Lufax, where most of the investors are individuals with a low-risk bearing capacity,” he added.

Lufax has asked Datong Securities to urge the borrower to repay the debt, according to a statement from the online lender. Some 118 investors bought the asset management product issued by Datong Securities, according to a statement from Lufax.

Datong Securities said in a statement that it has arranged staff to work at Longlive’s office for debt collection, and has been taking legal measures to deal with the matter.

Shandong Longlive said in its statement that a total of 4.41 million yuan in its bank accounts had been frozen after it missed the loan payment.

— With assistance by Jing Jin, Xize Kang, and Helen Sun

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