News / Asia

China Defaults Mount Among Inter-company Loans

Reuters
Chinese companies that have lent money to other companies are facing a potential wave of defaults, with several listed firms already reporting missed loan repayments.
 
Shipbuilder Sainty Marine on Tuesday became the latest listed firm to report that it had failed to receive principal and interest repayments on a 900 million yuan ($144.7  million) loan to a property developer.
 
The same day, Qiaqia Food Co announced that it would launch a lawsuit against another food producer for failing to pay interest on a 40 million yuan ($6.4 million) loan.
 
Chinese companies granted a net 2.55 trillion yuan ($411 billion) in so-called entrusted loans in 2013, nearly double the 1.28 trillion yuan total in 2012, making them the second-biggest source of domestic credit behind bank loans, according to Reuters' calculations based on published central bank data.
 
Entrusted loans require banks to serve as an intermediary, but a company serves as the ultimate lender and records the loan asset on its balance sheet.
 
“Companies offering entrusted loans typically want to lend while bypassing official restrictions for credit, such as lending quotas,” said Zhang Weigang, head of investment at Shanghai Securities. “That means they typically lend to risky industries such as property, solar panel manufacturing and non-ferrous metals.”
 
Entrusted loans are just one of several channels through which non-financial firms offer credit to one another, Zhang said. Other methods include corporate discounting of bank acceptance bills, as well as corporate purchases of trust products, which are usually backed by high-interest corporate loans.
 
Solar black spot
 
The recent string of defaults was first reported by 21st Century Business Herald, a Chinese newspaper.
 
Sainty Marine's potential loss came on an entrusted loan extended to Nanjing Fudi Real Estate Development Co in late 2012 with a maturity of 18 months, according to the lender's filing. The developer missed a required principal and interest payment worth 1.05 billion yuan, implying an annual interest rate of more than 11 percent.
 
Real estate developers in smaller Chinese cities nationwide are struggling with oversupply, leading to stagnant or falling prices.
 
The boss of Nanjing Fudi ran away in June, and the company's main development project remains unfinished, with the construction site sealed off behind a brick wall, the official Shanghai Securities News reported on Tuesday. The company couldn't be reached for comment.
 
At least four other companies have reported failure to receive interest or principal payments on entrusted loans worth 224 million yuan since February, according to exchange filings.
 
Hubei Yihua Chemical Industry Co and Ningbo Bird Co Ltd, which produces mobile phones, are also holding unpaid loans to real estate developers.
 
Solar equipment-makers Baoding Tianwei Baobian Electric Co Ltd and Sichuan Chuantou Energy Co failed to receive payments due on entrusted loans to their own subsidiaries, according to their stock exchange filings.
 
China's struggling solar sector produced China's first-ever domestic bond default last month when Shanghai Chaori Solar Energy Science and Technology Co Ltd missed an interest payment.
 
Tianwei Baobian itself has a bond interest payment due in July. That bond is currently trading at a nearly 18 percent discount to par value, indicating that investors are concerned about default risk.
 
While risk is mounting, there are no signs of listed companies losing enthusiasm for offering entrusted loans. Just this week, Lingyun Industrial Corp Ltd, Atlantic China Welding Consumables Inc and Tianjin Songjiang Co Ltd all announced new entrusted loans.

You May Like

Jihadist Assassin says Goal of Tunisia Murders Was Chaos

Abu Muqatil at-Tunusi’s remarks in a propaganda interview also cast light on attack on Bardo Museum More

Russia Denies License to Tatar-Language TV Station in Crimea

OSCE official says denial shows 'politically selective censorship of free and independent voices in Crimea is continuing' More

Kenyan Startups Tackle Expensive Remittances Through Bitcoin

Some think services could give Western Union a run for its money, though others say it’s still got a long way to go More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
For Obama, It's More Business Than Friendships With World Leadersi
X
Aru Pande
April 01, 2015 9:09 PM
The rift between President Barack Obama and Israeli Prime Minister Benjamin Netanyahu has put a spotlight on the importance of the American leader’s personal relationships with other world leaders and what role such friendships play in foreign policy. VOA's Aru Pande reports.
Video

Video For Obama, It's More Business Than Friendships With World Leaders

The rift between President Barack Obama and Israeli Prime Minister Benjamin Netanyahu has put a spotlight on the importance of the American leader’s personal relationships with other world leaders and what role such friendships play in foreign policy. VOA's Aru Pande reports.
Video

Video Buhari: Nigeria Has ‘Embraced Democracy’

Nigeria woke up to a new president-elect Wednesday, Muhammadu Buhari. But people say democracy is the real winner as the country embarks on its first peaceful handover of power since the end of military rule in 1999. VOA’s Anne Look reports from Abuja.
Video

Video Tiny Camera Sees Inside Blood Vessels

Ahead of any surgical procedure, doctors try to learn as much as possible about the state of the organs they plan to operate on. A new camera developed in the Netherlands can now make that easier - giving surgeons an incredibly detailed look inside blood vessels, all the way to the patient’s heart. VOA’s George Putic has more.
Video

Video Latin American Groups Seek Fans at Texas Music Festival

Latin American music groups played all over Austin, Texas, during the recent South by Southwest festival, and some made fans out of locals as well as people from around the world who had come to hear music. Such exposure can boost such groups' image back home. VOA’s Greg Flakus reports.
Video

Video Stockton Community, Police, Work to Improve Relations

Relations are tense between minority communities and police departments around the United States following police shootings that have generated widely-publicized protests. VOA's Mike O’Sullivan reports from Stockton, California, where police and community groups are working toward solutions, with backing from Washington.
Video

Video Indiana Controversy Highlights Divergent Meanings of Religious Freedom

Indiana’s state government has triggered a nationwide controversy by approving a law that critics say is aimed at allowing discrimination against gays and lesbians. The controversy stems from divergent notions of religious freedom in America. VOA's Jerome Socolovsky reports.
Video

Video Report: State of Black America a 'Tale of Two Nations'

The National Urban League has described this year's "State of Black America" report as a "tale of two nations." The group's annual report, released earlier this month (March), found that under an equality index African Americans had only 72% parity compared to whites in areas such as education, economics, health, social justice and civic engagement. It’s a gap that educators and students at Brooklyn’s Medgar Evers College are looking to close. VOA's Daniela Schrier reports from the school.
Video

Video Film Tells Story of Musicians in Mali Threatened by Jihadists

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video Ebola Vaccine Trials Underway in West Africa

Ebola has claimed the lives of more than 10,000 people in West Africa. Since last summer, researchers have rushed to get anti-Ebola vaccines into clinical trials. While it's too early to say that any of the potential vaccines work, some scientists say they are seeing strong results from some of the studies. VOA's Carol Pearson reports.
Video

Video Philippines Wants Tourists Spending Money at New Casinos

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.
Video

Video Civilian Casualties Push Men to Join Rebels in Ukraine

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.

VOA Blogs

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More