China finds US$15b of loans tied to falsified gold deals

Next wave of default might come from Commodity sector, rather from the property developers...

China finds US$15b of loans tied to falsified gold deals
26 Jun 2014 16:35
[SHANGHAI] Chinese gold processing firms have since 2012 used falsified gold transactions to borrow 94.4 billion yuan (US$15.2 billion) from banks, the country's chief auditor said.

Commodities such as copper, rubber, soybeans and bullion have commonly been used in China for financing, where traders or investors borrow against the commodity with the aim of investing the money in high-return areas such as real estate or shadow banking.

Most such deals are legitimate, but revelations of borrowing based on fake transactions in the gold market by the national auditor, which comes on the heels of alleged metals financing fraud at Qingdao Port, may prompt authorities to launch another crackdown on commodity financing.

Source: Business Times Breaking News

China firms are just learning from the west how to trade gold paperlessly. Same gold parked in a warehouse can be sold hundreds of times in the futures market to manipulate gold prices and profit from there. China is still a small fish in this game. Former London gold trader Andrew Macguire blew whistle a few years on this business practice a few years ago, but nothing has changed.

(27-06-2014, 10:09 AM)bonanke Wrote: China firms are just learning from the west how to trade gold paperlessly. Same gold parked in a warehouse can be sold hundreds of times in the futures market to manipulate gold prices and profit from there. China is still a small fish in this game. Former London gold trader Andrew Macguire blew whistle a few years on this business practice a few years ago, but nothing has changed.

Such deals are legitimate, both in London and China, albeit a very risky venture, which needs close regulation.

The issue with China, is the "falsified" transaction. It is risky to trade gold paperlessly, with lesser gold parked in warehouse, but it is very scary to hear trade gold paperlessly, with NO gold anywhere.

This news coupled with the recent similar news of CITIC resources' "missing" 100,000 tons of alumina sheds an ugly light on Chinese deals that use commodities as collateral for financing.

(27-06-2014, 10:39 AM)SpeedingBullet Wrote: This news coupled with the recent similar news of CITIC resources' "missing" 100,000 tons of alumina sheds an ugly light on Chinese deals that use commodities as collateral for financing.

More scary detail might be revealed on the recent alleged fraud at Qingdao Port.

Local trader companies affected are CWT and GKE, as far as I know.

(27-06-2014, 10:15 AM)CityFarmer Wrote:

(27-06-2014, 10:09 AM)bonanke Wrote: China firms are just learning from the west how to trade gold paperlessly. Same gold parked in a warehouse can be sold hundreds of times in the futures market to manipulate gold prices and profit from there. China is still a small fish in this game. Former London gold trader Andrew Macguire blew whistle a few years on this business practice a few years ago, but nothing has changed.

Such deals are legitimate, both in London and China, albeit a very risky venture, which needs close regulation.

The issue with China, is the "falsified" transaction. It is risky to trade gold paperlessly, with lesser gold parked in warehouse, but it is very scary to hear trade gold paperlessly, with NO gold anywhere.

The old game created in the west is that you can legally sell non existent gold hundreds of times.
The Chinamen tried to create a new game, by telling the bank they have some gold which doesnt really exist, and borrowed money based on this lie. If we think logically, it does not differ much from each other. There is no physical gold in both cases. Just a promise that gold exists and money flows.

If China central bank can develop the concept further and legalise it, then there will be an alternative to the FED's fractional banking system eh?


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Isn't everybody already using such a system? e.g. credit card?

I don't have to have money in my credit card account and I can spend it anyway.

Isn't that unsecured lending?

I suppose here it is unsecured borrowing made to appear like secured borrowing.

The risk i think will be systematic failure since gold price has fallen from all time high. And if borrowing is recalled it can be negative returns. The banks will want to keep it quiet at least till gold price returned.

Agreed, but credit card issue has a much tighter control by putting a credit limit based on cardholders income. The gold game is virtually limitless. A ton of gold can be sold hundreds of time.
Anyway, what I am thinking is that the mainstream media is always being unfair to Chinamen, making us believe that Chinamen are going to get into troubles soon by doing something not right. It is really no big deal in fact.

(27-06-2014, 11:25 AM)freedom Wrote: Isn't everybody already using such a system? e.g. credit card?

I don't have to have money in my credit card account and I can spend it anyway.

Isn't that unsecured lending?