Sunday, January 19, 2014

Breaking: Chinese Financial Firm Warns Shadow Bank May Not Repay Its Debt

Reuters reports:
The trust firm responsible for a troubled high-yield investment product sold through China's largest banks has warned investors they may not be repaid when the 3 billion-yuan ($496 million)product matures on Jan. 31, state media reported on Friday.

Investors are closely watching the case to see if it will shatter assumptions that the government and state-owned banks will always protect investors from losses on risky off-balance-sheet investment products sold through a murky shadow banking system.

Based on a loan to an unlisted coal company, the now distressed product was created by China Credit Trust Co Ltd, while Industrial and Commercial Bank of China , the world's largest bank by assets, helped to market it to wealthy investors in central Shanxi province.

On Friday, the official China Securities Journal reported that the trust company is considering legal action to press related parties for repayment to protect investors' interests.

The newspaper went on to quote trust industry sources saying an outright default was likely to be avoided simply by delaying repayment until arrangements were made to repay investors by other means.
I have been reporting at the EPJ Daily Alert that China is on the verge of a huge collapse. Indeed, in recent weeks I have been advising that Chinese financial sector ETFs be shorted.

China may be able to bail out one deal, but the problem is developing nationwide across the capital goods sector, and a nationwide bailout would mean massive inflation. Eventually, China is going to have to either allow a massive crash or print incredible amounts of money that risks major unrest from the general public who will have to deal with the price inflation consequences.

(ht Carl Cook)


  1. I hate to seem cruel, but I hope China experiences some kind of catastrophic collapse. I don't hate the Chinese. Quite opposite really; I've been a sinophile since I was a toddler. However, they need a little comeuppance. Also, if they gave a major hick up, it may be the catalyst to some real change in the USA. If China decides to cash in its US debt, the gig could be up for the Fed.

  2. Print or sell off some US treasuries?

  3. We can only hope that China will take the opportunity to set a positive example for the world. Liquidate the company's assets, divide whatever is left amongst creditors and be done with it. All losses must be born by the company and its investors with zero losses to taxpayers.

    Well, I can dream can't I?

  4. Gold demand in China is enormous--you can see why.

    1. Yeah, I was wondering about that. How does gold fit in and how would it help their troubles?

    2. because at the end of the day it's attached to no liability unlike the money in your pocket.