Shandong Bad Debt Daisy Chains Exploding, Loanshark City Falls on Hard Times

A blanket of liquidity covered up bad debt for more than a year, but "neutral" monetary policy has revealed the underlying problem once more. iFeng has an entire special section devoted to Shandong's exploding daisy chains.

iFeng: 山东债务连环劫

The debt issues became headline news after a major news story involving the stabbing of a loan shark.

Global Times: Lenders plagued by ‘deliberate defaults’
The legal system has loopholes in terms of protecting the rights of private creditors, especially when some borrowers "deliberately default on loans," and that situation has driven the growth of debt collection agencies, several private lenders told the Global Times on Tuesday.

Their comments come amid a public controversy over the "Shandong loan shark killing" case, where a man called Yu Huan reportedly stabbed and killed one of his mother's debt collectors, to whom she owed 170,000 yuan ($24,696.37). Yu claimed that debt collectors insulted and threatened his mother, Su Yinxia, in front of him for more than an hour.

Su's company, Shandong-based Yuanda Gongmao, borrowed 1.35 million yuan at a 10 percent monthly interest rate from a local real estate company, which later hired the debt collectors. As of April 2016, Su had repaid 1.84 million yuan in principal and interest and signed over a property valued at 700,000 yuan, but she was unable to pay the remaining 170,000 yuan.
If this website for Yuanda Gongmao is the company in question, one might also ask why a real estate developer was lending to a company that makes machines for processing chicken, fish and dog meat, as well as jujube paste.

As for the daisy chain at focus today, it's Tianxin Group and seven of it subsidiaries.

Metal Bulletin: Parent company of Shandong Tianyuan Copper begins bankruptcy proceedings
China’s Shandong-based Tianyuan Copper will undergo restructuring as its parent company Shandong Tianxin Group begins bankruptcy proceedings, according to a statement released by the Dongying Intermediate People’s court on Tuesday February 7.
Seven of Tianxin's divisions are in default. The government hopes to sell the debt to a state-owned finance company.

iFeng: 山东债务连环劫:不只邹平齐星 东营天信系也陷危机
Dongying Court on February 7 published information, Tianxin Group involved nearly 30 companies, business mainly related to textile, photovoltaic, copper processing, real estate, etc., is now officially placed on the 7, respectively, Tianxin Group Co., Ltd., Shandong Tianyuan Copper Ltd., Dongying Tianze Import and Export Co., Ltd., Dongying Tianze Waste Material Recycling Co., Ltd., Dongying Tianze Logistics Co., Ltd. and Shandong Aona Textile Technology Co., Ltd., the other part of the Shandong Science and Technology Co., The case is pending.

21st Century Economic News reporter According to Dongying Court published information calculation, the total liabilities of the seven companies about 16.335 billion yuan. The total amount of debt will also be raised if the debt that may have existed on the business that has not yet been placed. Such a big debt crisis, how to resolve?

21st Century Business Herald reporter learned from the creditors, for about 30 days of the letter and its affiliated companies, the actual control of the company, as well as other secured company's financial claims solution, in February this year, the local government has brewing bank debt package, Hoping to sell financial claims to state-owned Dongying City Finance Group.
Before filing for bankruptcy, the company was ranked #18 in Shandong's list of 100 top private enterprises and #341 in China Entrepreneurs' top 500.

In addition to the company's seven divisions, credit guarantee companies are also in trouble:
According to the Chinese referee document network incomplete statistics, from the beginning of 2016 to March 29, 2017, the seven companies involved in a total of 10 private lending, the latest together for the Shandong Aona Textile Technology Co., Ltd. to Liu Huashan loan 18.2 million yuan, but it is difficult to return all the principal and interest of the private loan dispute case.

In addition, there are a number of days for the Group and its related enterprises to provide financing guarantee enterprises are implicated.

Such as March 10, Shandong Jinmao Textile Chemical Group announced that as of February 9, 2017, its Shandong Tianyuan Copper Co., Ltd. in the Bohai Bank Jinan Branch and the Agricultural Bank of China Dongying Dongcheng branch provided no more than 49 million yuan and not more than 48 million yuan joint guarantee guarantee. But the relevant banks have not yet filed a lawsuit against Tianyuan Copper or asked the company to fulfill its guarantee obligations.

March 16, Dongying Court announcement shows that the days of the Group's first creditors meeting will be held on May 16, 2017 at 3 pm in Dongying District, Dongying District, Yellow River Road, No. 36
Another firm in trouble is Qixing Group, one of several companies in Zouping that are in financial trouble.

Aluminum Insider: Massive Debt Forces Chinese Firm to Idle Smelter, Refinery in Shandong
According to Aladdiny, a Chinese information provider, Shandong Qixing Group Co., Ltd. suspended operations of its 130-thousand-metric-ton-per-annum aluminium smelter and is planning to stop production at its 500-thousand-metric-ton-per-annum alumina refinery due to the firm’s substantial debt burden.

The report went on to say that the company might consider re-starting production in six months should the market be conducive to it.

This situation points up a larger problem occurring in the Chinese aluminium industry – stifling debt.
iFeng: 深度:债务崩盘的山东模版 从疯狂民间高利贷说起
Since the reform and opening up, Zouping has developed into one of the few industrial counties in Shandong Province, Zouping the number of listed companies, the amount of financing in Shandong Province ranked the first county-level cities, the national economy top 100 basic competitiveness in the top 20.

Turning back to six years ago, loansharking was Zouping young people's most beautiful "career", and proud of it. Many people give up their stable work, specializing in private lending, in order to lead the luxury car access, big money to spend their lives.

Between 2011 and 2012, in the streets of Zouping, BMW, Audi, Cadillac, Infiniti, Porsche and other luxury cars are everywhere, the drivers mostly young people.
Local financial business executives told reporters that many young people in Zouping view, this is a fortune "way", and less investment, quick results. In 2011, many of the original often appear in the rural village, the city streets of young people gone, they crowded in the county, township hotels around. Soon, when they once again appeared in front of the villagers, the car is BMW, Mercedes ... ... at that time, private lending did bring them benefits, "overnight riches."
Another firm in bankruptcy is brick maker Changxing Group:
Changxing Group is the representative enterprise of Changjiang Town, Zouping County. Its core enterprises include Shandong Xingxing Paper Co., Ltd. and Shandong Changxing Wind Power Technology Co., Ltd., which belong to wind power, papermaking, building materials and chemical materials industry. During the National Day in 2013, the group came out more than 60 billion loans can not pay the news, the loan involves more than a dozen banks, mainly due to wind power investment dragged down.

As the Changxing Group into a debt crisis, and apply for the impact of bankruptcy proceedings, which led to the majority of financial institutions on the Zouping County concerns, resulting in Zouping County is classified as a high-risk areas of financial. Since then, the major financial institutions have compressed the scale of credit for enterprises in Zouping County, up the approval authority, making the corporate financing environment is very difficult.
Meanwhile Qixing involves 36 companies and 7 billion yuan in debt:
Qixing Group funds strand breaks, 36 financial institutions to save more than 7 billion credit exposure.
But that is not all. Mutual credit guarantees and private borrowing at high interest could push the debt total into the dozens of billions:
With the capital chain broken, Qixing Group, a number of projects due to shortage of funds have been discontinued. A source close to the Qixing Group, said the Qixing Group, first level mutual guarantees reach 10 billion, outside level two mutual guarantees is in the billions or hundreds of billions of dollars, the government is introducing a rescue policy. Even more surprising is that the total amount of Qixing Group's debt is not limited to the banking industry, there is much social financing, this figure is about 4 billion yuan. Qixing's debt chain involves a wide range, not only a number of credit guarantee firms, as well as social financing companies. The so-called social financing, in fact, to a large extent, "usury".
Of course the credit guarantee firms are being pulled by the undertow:
Xiwang Group as a guarantor of the loan, has also been involved, and the amount is huge. According to the Shanghai Clearing Network, "Xiwang Group Co., Ltd. 2017 second issue of short-term financing vouchers to raise instructions," disclosed in the West Wang Group and Qixing Group for the mutual relationship, the West Group of Star Group's loans to provide joint and several liability guarantee, As of the end of June 2016, involving the amount of 2.464 billion yuan.
Then there's Weiqiao Group:
However, March 22, China's Hongqiao and Weiqiao textile both announced that the delay in the release of performance and suspension. China's Hongqiao said the suspension was due to the need for more time to deal with the problems raised by its auditors at the end of 2016, and its auditors had suspended the first quarter of 2017.
More on that story from Aluminum Insider: Metal Fatigue – Has China Hongqiao’s Weiqiao Model Run Its Course?
The world’s largest aluminium company finds its finances again in question after being suspended from the Hong Kong Stock Exchange.

China Hongqiao Group Limited saw the trading of its shares halted Wednesday morning, one day after announcing that the publication of its annual results would be delayed. According to the relevant filing, Hongqiao advised the market that publication was delayed due to unspecified issues raised by its auditor Ernst & Young in the course of its work. These issues mean the audit may not hit the desks of shareholders until the end of next month.

...As the lion’s share of the cost of aluminium production is wrapped up in generating power, a good place to begin investigating is looking into the cost of producing that energy. According to Emerson’s calculations (utilizing publicly reported numbers), as the cost of coal rose, the cost reported by Hongqiao fell. Taking the first nine months of 2010 as an example, the market price of coal rose by 23%, while the reported cost of power produced by Hongqiao dropped by 33%. The firm’s internally-generated power costs continued to fall, even as coal prices rose, each year after 2011. Despite investigating several different alternatives, Emerson came to no plausible reason why this could happen.
EJ Insight: China Hongqiao fights back short-seller via southbound trading
Recently, China Hongqiao came under attack from short-seller Emerson Analytics, which alleged in a research report that Hongqiao had under-reported the cost of its self-generated power and alumina and that the share price should be worth only HK$3.1, or 60 percent lower than its level when the report was published.

Hongqiao’s share price slumped nearly 10 percent on March 1, when the short-seller published the report.
Finally, returning to the conclusion of the iFeng article:
The above enterprises are Zouping local giant-type enterprises, account for more than half of Zouping's GDP.

This year, the local corporate financing costs rise significantly, even for several well-known enterprises. "For example, Weiqiao Venture Group's debt costs, up 1.5 percentage points over last year." Even so, there are not many companies to obtain financing, especially bank loans. Other financial institutions, a large part of the funds from the banks, and now most of the "no rice."

Zouping County, some enterprises began to set up a common maintenance of regional normal credit order alliance. Dozens of enterprises together, hoping to dialogue with the banks to ensure that loans on time.

"The most extreme approach is if the banks call the loans, then none of the enterprises borrowing from this bank can pay back their loans."
The government always finds a way to stop the credit pyramid from imploding, and they're hard at work again after 2016's firehose of liquidity was turned off.

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