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“Regarding this unsubstantiated rumor, a situation completely will not exist where ICBC will suppose the primary responsibility (for the trust-product), on Tuesday” a ICBC spokesman told Reuters by phone. 2010 to make a loan to unlisted coal company Shanxi Zhenfu Energy Group Ltd. But in May 2012, Zhenfu Energy’s vice chairman, Wang Ping Yan, was imprisoned for accepting deposits without a banking license.
Following a study, China Credit Trust informed traders that Zhenfu Energy got applying for high-interest underground loans totaling 2.9 billion Yuan, bringing its total liabilities to 5.9 billion Yuan and threatening its ability to settle the trust loan. China’s coal industry has been battered by falling prices over the last year.
Several other banking institutions and trust companies are facing losses on loans to another coal company, Liansheng Resources Group. Analysts have portrayed increasing concern in recent years about Chinese banking institutions’ contact with off-balance-sheet dangers. While trust products and other so-called wealth management products typically don’t bring a formal assurance from banks that help to create and sell them, bankers worry that investors widely understand them as holding an implicit assurance from state-owned banking institutions.
Business Insider reports that problem is widespread. Rising municipality debt has had many concerned about an impending financial crisis in China. We’ve seen WMPs rise 47.4% in Q3 2013, from a year ago. Trust products are 60 up.3% in the same period and LGFV bonds are up 59.7% on the year. In the past five weeks, we’ve seen sales and yields of WMPs spike.
Eighty-three percent of WMPs sold in the last five weeks have seen an expected comeback of 5-8%, an all-time high, Cui points out. The mainland’s fiscal position is weaker than established data shows but not significant enough to cause alarm, the IMF said in a report released last night. The International Monetary Fund also warned that the mainland was now “more vulnerable to a macroeconomic shock” due to its higher debt and bigger deficit. What goes on when some of these local government financed WMP’s default and the (government-owned) bank or investment company that marketed them won’t stand in it?
Could it shake the confidence of Chinese investors? If so, what exactly are the possible global contagion results given the size and role of the China in the world’s overall economy? Countrywide-like death spiral, which kicked off the Subprime Crisis and following Lehman Crisis, or a Dubai default of 2009, that your market shrugged off?