A man looks at the Pudong financial district of Shanghai November 20, 2013. REUTERS/Carlos Barria/File Photo
Reuters: Special Report: 'Ghost collateral' haunts loans across China's banking system
The banker at the other end of the phone line was furious, recalled Shanghai lawyer Wang Chaoyu. A pile of steel pledged as collateral for a loan of almost $3 million from his bank, China CITIC, had vanished from a warehouse on the outskirts of the city.
Just several months earlier, in mid-2013, Wang and the banker had visited the warehouse and verified that the steel was there. "The first time I went, I saw the steel," recalled Wang, an attorney at Beijing DHH Law Firm, which represents the Shanghai branch of CITIC (601998.SS). "Afterwards, the banker got in contact with me and said, 'The pledged assets are no longer there.'"
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WNU Editor: For those who are new to this blog .... I have been dealing with China since the mid 1980s. I will never forget this one experience .... one of my many contacts was doing a booming business exporting products to customers overseas. When I asked him on how was he financing his production .... he told me that it was all based on "air" .... and that was in 1988!!!! If this Reuters special report is true .... which I know it is .... what has happened in China since the late 1980s is that instead of using "ghost collateral" to finance projects that are worth a few hundred thousand dollars .... they are now doing it to finance projects worth hundreds of millions. Bottom line .... when a downturn occurs .... and for China that will happen one day .... this "house of cards" will collapse. The ramifications on China, the global economy, and how China will respond .... you can take this to the bank .... will be severe.
Update: Zero Hedge has a more comprehensive analysis on this Reuters post .... Reuters Goes To China, Discovers "Ghost Collateral" (Zero Hedge).