Foreign and local banks in China are inspecting loans linked to metals supposedly warehoused in Qingdao, where traders use commodities from iron ore to rubber to secure loans.
A police investigation is focused on Decheng Mining to determine if it used the same batches of copper and aluminium stockpiled at Qingdao Port as collateral to secure multiple separate loans.
An estimated 14.8 billion yuan ($238 million) was loaned to Chen Jihong, Decheng Mining’s owner, and his other companies by the Bank of China Ltd., Export-Import Bank of China, China Minsheng Banking Corp. and 15 other Chinese banks, according to Fu Peng, chief strategist at Galaxy Futures Co. in Beijing.
Chinese companies have used commodities as collateral to borrow money in foreign currencies to finance Chinese assets. The practice is common with iron ore, copper, rubber and soft commodities such as grain, corn and soy beans.
The financial scandal has spread to the petrochemicals sector after an investigation was launched in Tianjin. Standard Chartered revealed that it has $250 million worth of commodity-related exposure at the Qingdao Port.
Citi, HSBC and Standard Bank also responded to the investigation by announcing increased diligence over lending practices.
Sources: Bloomberg, Businessweek, Channel NewsAsia, International Business Times
Hui Zhi is the Senior Manager for Content with the China Compliance Digest, where a version of this post first appeared.