Second Generation Wealthy Meet Their Waterloo

This story has been floating around the web for a few days in China, the story of Haixin Steel and the 富二代, the children of wealthy entrepreneurs who became rich under Deng's reforms in the 1980s. The headline is as I have translated it above, the 富二代 meet their Waterloo.

Firs the latest on Haixin:

China’s Haixin Steel comes to standstill after final furnace stoppage

"It is not viable to continue producing when we are making a loss of 200-300 yuan [$32-49] per tonne," a source close to the privately-owned mill told Steel First on Thursday March 20.

The mill, which is based in central China's Shanxi province stopped operation of its five other furnaces last week after defaulting on loans.

However, Haixin is not bankrupt, the source stressed, and is still seeking local government support.

"Haixin expects to be granted sufficient loans by the end of the month," the source said.

The source did not rule out the possibility of Haixin restarting its furnaces once its credit problems are solved.

However, the source noted that the company is now more interested in investing in other, non-steelmaking industries such as real estate and education.

Real estate!

This is a good time to revisit a photo I posted here back in November:

What I wrote then:

The headline is "life or death" for Chinese steel companies. On the left hand side is a comparison of Hebei province's (the one that surrounds Beijing) steel production versus Japan, USA and Russia, with Hebei producing 1.5 times as much as Japan, 1.85 times as much as the entire U.S.A., and 2.3 times as much as Russia. On the right (it's hard to see) is a comparison of profit margins on a ton of steel. Several years ago it was an iPhone, then it was meat, and now it is a popsicle.

The government wants to shut steel mills for good reason, with one province alone producing as much steel as the United States. That leaves a lot of steel mills to close, and if they have high debt ratios, it will lead to an expensive bill for local governments. If property markets soften, and local governments get the bulk of their revenue from land sales, and they are also unable to borrow as much due to high debt levels and central government policy, how will they bail out the mills?

On to Waterloo: 海鑫钢铁30亿债务缠身：富二代的滑铁卢

　Following the 70 million married women bankruptcy collapse Libin coal bosses, the largest private steel enterprises in Shanxi - Haixin Iron and Steel Group has also a crisis.

　　Local steel industry sources told 21st Century Network, Haixin Iron and Steel last week overdue loans phenomenon, present serious losses, and more blast furnaces have been shut down, workers' wages are owed several months.

　　According to the 21st Century Network is understood that the scale Haixin Steel mills in the country, although only ranked in the middle, but the visibility of their boss was rude industry heavyweights.

　　2003 Haixin Steel founder Li Haicang was shot dead, when he was only 22 years old, Andy Lee will take over the position to become wealthy Marshal.

　　However, he did not seem his father's steel business showed particular interest. 10 years Haixin the declining steel business, but outside the ring of steel, Li Zhaohui but "play" fast, becoming the youngest richest man in Shanxi.

　　Stake in Minsheng Bank, Minsheng Life Insurance, Yinhua Fund, Industrial Securities, Shanxi Securities to expand financial landscape; buying China Aluminum, Yimin Commercial, Industrial Bank, Luneng number of listed shares, making a run; married actor 2 years after the divorce car Xiao, Li paid a 300 million consideration of marriage.

　　　　
　　Succession decade Haixin Iron and Steel is already a dead end?

　　Haixin Steel: Steel decade old emergency

　　March 7, a "a steel plant in Shanxi discontinued due to funding strand breaks, Jiangsu mills verbal notification received from the bank, said the credit will be reduced by 20%" message circulated in the circle.

　　Day, iron ore, coal, coke futures three varieties of ferrous metals industry chain opt limit, according to several industry analysts, "Shanxi certain steel" refers Haixin Iron and Steel.

　　According to public information, Haixin Iron and Steel is located in Yuncheng, Shanxi Wenxi, founded in 1987, is an iron and steel industry, the set of resources, finance, real estate, education and other children's line (production) industry is one of the large enterprise groups . With 5.6 million tons of iron, steel production capacity of 6 million tons, 2.6 million tons of building materials, 2.6 million tons of slab, 2.2 million tons of hot rolled coil, is the largest private enterprises in Shanxi Province.

　　"Hai Xin stopped most of the production line, is now no takeout, but also the production of goods previously owed." Above the steel industry sources told the 21st Century Network.

　　Many Haixin agreement households income does not arrive due to produce a panic, and even appeared on the market Haixin collapse, bankruptcy rumors, the media then reported that Haixin Iron and Steel failed to repay overdue bank loans last week.

　　"Loan size of about 3 billion or so late, but the exact number is not clear." Above the steel industry source said.

　　21st Century Network on the above call Haixin Iron and Steel, one office staff said these cases are not clear, then they are linked to the 21st Century Network Haixin Iron and Steel General Manager's Office, a staff member said, "all the company's current production normally, several blast furnaces are running outside people say that we have no alternative. "

　　According to Steel House news Haixin Iron and Steel on January 6 on 1380m3 blast furnace maintenance, planned to resume normal production in mid-March, is expected to affect the molten iron is about 0.4 tons / day; currently 3 630m3 blast furnace is off the wind, impact of molten iron is about 0.57 tons / day, the end time is uncertain.

　　Haixin Iron and Steel has encountered some trouble.

　　China's steel industry is currently facing multiple crises, overcapacity, high debt, weak demand, most of the steel prices are at a loss. Vice Chairman of China Iron and Steel Association, said Liu Zhenjiang more recently, in the first quarter of this year may be the steel industry since the benefits of the new century the worst quarter, steel companies began to truly enter now or in the winter.

　　The deep inland Shanxi Haixin Iron and Steel is the case of the private steel worse.

　　"Compared to the coastal iron and steel enterprises, iron ore shipped products shipped out come, logistics costs are much higher." One analyst told the United Steel net in the 21st century. According to its analysis, Haixin Iron and Steel also has at least several hundred million loss last year.

　　The problem has already caused Haixin various warning signals.

　　Yuncheng Branch Banking in December of last year, a "For Yuncheng steel industry survey of bank credit risk situation," pointed out: To strengthen the linkage between the various sectors of banking institutions, especially Haixin Iron and Steel Group Co., Ltd. as a huge amount of such loans In a number of lending institutions are leading enterprises, enterprise information exchanges should be, aware of the loan amount, to prevent excess credit, difficult to monitor the amount of funds and other issues.

　　As the largest local private enterprises, Haixin revenue accounted for more than 60% annual contribution Wenxi, but the relationship with the government Haixin are increasingly alienated.

　　Steel prices Marshal LiZhaoHui: love does not love Industrial Investment

　　Li Haicang different with his father, Li Zhaohui few returnees and the government to deal with.

　　"We had wanted to visit Magistrate Li Zhaohui, finally did not make the trip. LiZhaoHui times since taking over Haixin annually since only a handful of appearances." Wenxi Committee Propaganda Department official told the media said so.

　　It is reported that Li Zhaohui perennial stay in Shanghai, Beijing and rarely stay wenxi, he has exclusive private aircraft, each to Wenxi will Yuncheng plane landed at the airport, and therefore difficult for outsiders to know his whereabouts.

　　In addition to the relationship between government and business indifferent Haixin Iron and Steel relationships with local businesses also deteriorated.

　　21st Century Network survey found that by 2005, three-dimensional and Shanxi Haixin, Shanxi Guanlu number of listed companies are closely related, signed a mutual agreement to provide financing guarantees for each other, but in 2005, after almost no This cooperation.

　　Andy Lee will operate mainly in the capital markets as a platform Shanxi Haixin Industry. Andy Lee will hold wenxi Hui Tian Industrial Co., Ltd. 90% stake, wenxi Hui Tian holds 89.3% stake in Industrial Haixin Iron and Steel Group, Haixin Iron and Steel Group holds a 90.93% stake in Shanxi Haixin Industry. Through this chain, Andy Lee will be in the hands of the family assets.

　　Andy Lee will be in the capital market, the most admirable, was in November 2004, Haixin's Shanxi Haixin Industrial Co., Ltd. at a price of 590 million yuan, the color of shares held by the transferee 160,000,000 shares of Minsheng Bank, Minsheng Bank to become The tenth largest shareholder.

　　2007 Hurun chart, Li Zhaohui Minsheng Bank net worth due to holdings surged to 8.5 billion yuan, ranked 78, compared with a net worth soared 112% in 2006, and became the youngest Shanxi's richest man.

　　However, according to a Haixin insiders, this is not a major investment from credit Li Zhaohui, while his father Li Haicang.

　　This is Li Zhaohui by far the most successful investment, Haixin Industrial bull market highs in the first half of 2007, selling in the hands of nearly 100 million shares of Minsheng Bank, cash in more than 1 billion yuan.

　　Li Haicang lifetime as vice chairman of the National Federation, and Minsheng Bank initial "background" is the Federation, Li Haicang served as director of Minsheng Bank. The important thing now a Haixin assets - Minsheng Life Insurance, Industry and Commerce also has the "background."

　　It is reported that Minsheng Life Insurance is one of the seven straight national insurance companies CIRC in 2002 founded by the National Federation of the lead, then the top three shareholders are universal Finance Limited, China Oceanwide Holdings Group Co., Ltd. and the sea Xin Steel.

　　After several changes in equity, Haixin Iron and Steel still holds 13.15% stake in Minsheng Life Insurance, ranked the fourth largest shareholder.

　　November 2004, Li Zhaohui's Haibo Xin Hui, obtained from the hands of Arima Technology Heilongjiang Fuhua Group (later renamed Universal Denon) 21.5% stake, making it the second largest shareholder in the company.

　　After a year and a half, Haibo Xin Hui clearing the entire 3293.75 million shares, more than 700 million profit.

　　2007 LiZhaoHui the three big listed companies intend to buy, August to bid 215 million yuan in Shanxi Securities acquired 3.84% stake; October to participate in Societe Generale Securities to increase their investment to 103 million yuan to subscribe for the 6871 shares; November and to 1.18 billion yuan at high prices auction Yinhua Fund purchased 21% equity interest.

　　In addition to the Minsheng Life Insurance, equity Li Zhaohui has purchased all sold, but the benefits far below the Minsheng Bank.

　　Equity Yinhua Fund, for example, in 2012 this part of Southwest Securities acquired shares at a price of 1.18 billion yuan, five years, Li Zhaohui has not been profitable.

　　Subsequently, Li Zhaohui has worked in the capital markets to buy China Aluminum, Yimin Commercial, Industrial Bank, Luneng Taishan and many other listed stocks, Kuaijinkuaichu, it is not particularly rosy results.

　　Haixin Steel boom-bust: or integration

　　Although Andy Lee will play in the capital markets fast, but did not get Haixin Iron and Steel leaps and bounds.

　　"Hai Xin Sha Steel would have wanted to be, Chinese private steel mills sit first chair", talking about Haixin Iron and Steel, Shanxi steel circles had so lamented.

　　Joint metal in 2011 for a private steel companies nationwide survey shows that in Li Haicang times Haixin Steel total assets of 4.036 billion yuan, net profit of 413 million yuan, ranking the forefront of the domestic private steel enterprises; 2004 Haixin Steel has also to pay taxes 227,560,000 yuan ranked Chinese private enterprise tax hundred table top; 2005 sales revenue of 7.014 billion yuan, net profit of 213 million yuan.

　　After Haixin Iron worse.

　　Since 2006, many times Haixin Steel Ministry of Environmental Protection, Shanxi Environmental Protection Department and other departments informed criticism or supervision violations rectification project. After the financial crisis in 2008, the steel industry has been affected, Haixin Iron and Steel discontinued for half a year.

　　A surprising is very active in the capital markets of LiZhaoHui Haixin Iron and Steel failed to be able to operate the market.

　　Since Li Zhaohui low-key, little is known about the company in the industry. A Haixin three quarters of 2009 steel production and operation of the 21st century network obtained from the website of the Ministry of Commerce show that during the reporting period Haixin Iron and Steel cumulative production of iron 1,963,500 tons, down 24.30%; production of 1,799,100 tons of steel, an reduction of 26.22%; production of steel 1,528,700 tons, an increase of 8.43 percent.

　　Haixin Iron and Steel same period total industrial output value of 5.948 billion yuan, down 40.03%; industrial added value of 943 million yuan, down 61.58 percent; sales revenue 5.723 billion yuan, down 41.72%.

　　And the same is private steel tycoon Du Shuanghua, Rizhao Steel was founded in 2003 to create a 4.5 billion net profit in 2010.

　　"Hai Xin actually only 3 million tons of annual production in the domestic mills have not break into the top 30." An analyst in the 21st Century Network United Steel said.

　　As the industry downturn, coupled with the restructuring of the national steel background, beginning in 2009, Shanxi, Taiyuan and Beijing Shougang began to negotiate the acquisition of Haixin Iron and Steel, but has been unable to make the trip.

　　"Now Haixin capital chain is a problem, but also estimates the restructuring, and now the local government has to intervene." Above the steel industry source said.

China Preferred Shares Seen As Market Rescue Plan; Second Major Ghost City Emerges; Chinext Ends IPO Profit Requirement; Haixin Debt 5 to 7 Times Larger Than Reported

Preference shares, prescription for ailing China stock market?

According to the CSRC, the face value of one preference share in China is set at 100 yuan (16.2 U.S. dollars).

A listed company refers to one listed on a stock exchange. An unlisted public company is one that is not listed but has either issued or transferred shares to more than 200 shareholders.

According to the CSRC, three kinds of listed companies are eligible to issue preference shares, including some blue chips, companies with merger and acquisition plans, and those which perform a common share buyback to lower registered capital.

Stock market commentator Ai Tangming said the scope for eligible companies was wider than he expected, indicating that the state regulator is eager to release reform dividends to boost the capital market.

.....Investors widely predicted banking shares will be included first in the program. Banks rose across the board on Friday with the Industrial and Commercial Bank of China, the nation's largest state-owned lender, rising 1.83 percent, and China Construction Bank, the second largest, up 2.38 percent. The index tracking the banking sector jumped 4.39 percent.

Preferred shares will draw more money into the equity market, but it isn't a big enough policy to spark a jump in shares. Like in the increased ceiling on foreign ownership, it is a positive reform that raises the present value of the Chinese stock market, but the benefits are long-term while the risks are heavily concentrated in the short-term.

Elsewhere, "the renminbi may depreciate 10% over 2 years and that will lift home prices": 人民币未来两年或贬值10% 央行若降准房价将再次上涨. I believe Chinese home prices will fall in foreign currency terms and also in terms of gold. A 10% depreciation in the yuan isn't nearly enough to spark a price increase if there's a major decline.

There's some good info in the article though:

Analysts believe that the mainland real estate enterprises listed in Hong Kong a few years ago most of the debt borrowed a lot of dollars, the interest rate is usually around 8% to 10% in the appreciation of the renminbi stage, partly offset by interest rates and exchange rates. But once the tide of RMB devaluation, interest rates and exchange rates will be superimposed. Data show that only the fourth quarter of last year, the mainland real estate enterprises issued in Hong Kong more than 80 billion dollars in bonds, some small real estate bill rate is above 10%, for example Wuzhou International up 13.75 percent coupon rate. 2 percent devaluation last two months, the cost of debt means that developers will increase accordingly.

Again, the small change in renminbi is an issue, but the bigger issue is home prices. A 2% decline in the yuan isn't going to mean much versus a 20% drop in home prices.

Meanwhile, the "second Ordos" arrives in Fugu, Shaanxi: 府谷或成鄂尔多斯第二 民间借贷崩盘楼盘价格腰斩 (Fugu may become the second Ordos; Prices cut in half)

March 20 at 10 am, Fugu County, Shaanxi Province 70-80 people gathered in front of the county government, has dressed beautiful young women, there are also white-haired old man, their common goal is to collect debts.

A creditor told the "China Times" reporter, the debtor's name is Zhang Xiaoli, she operated by Hong Chang Xin Shaanxi Coal Industry Group Corporation (hereinafter referred to as Hong Chang-hsin) illegal deposits from the public up to 21 billion yuan, involving hundreds of persons. Today, not only do not pay back the money, people have been faceless. Creditors had a collective petition to the county Office of petitions, hoping the government solve the problem.

This is just a fragment of Fugu private lending collapse, starting in 2012, the private lending Fugu chain began full break, but has its roots in the local economic pillars - the coal industry's decline. Private lending collapse also caused Fugu county's credit crisis and the resulting general tightening of capital chain. In order to resolve the growing number of private lending disputes, after the Spring Festival, the county set up a fight and disposal of illegal fund-raising work of the Leading Group Office (hereinafter referred to as non-office hit).

Coal production is big in Shaanxi as it was in Inner Mongolia, where Ordos is located.

Property domino

Fugu County, a staff member told reporters that the collapse of private lending, resulting in a credit crisis Fugu city. Over the past more than ten million borrowed a phone call away, even the receipts do not have to fight. Even now borrow 10,000 yuan from relatives and friends have no one would dare to borrow, human relations indifferent.

Another civil servant, also said in the past, Fugu funds are "live", flowing, and hands every household money. Today it is fully tightened, most of them lying on the bank to sleep.

In this regard, the most sensitive reaction is the real estate industry. Fugu New "Xin Yuan toward" a real estate manager, told reporters, because the developers have capital chain tension, markdowns for the return of funds, and the intensity is still very great.

Newspaper reporter in "New One" real estate visit also learned that the highest real estate prices from 12,000 yuan / square meter, now dropped to 7000-7500 yuan / square meter, a drop of nearly half.

Price cut even trigger a chain reaction, from the "New One" near "the capital of the Golden Mile" Property owners meeting occurred just recently, the cause of the delay is the developer submitted. But the aforementioned real estate manager, told reporters that the real reason is dissatisfaction with the real estate owners refused to cut prices, take the opportunity to reject all moved.

March 19, "the capital of the Golden Mile," the sales staff also told reporters that the real estate prices are currently still 9,200 yuan / square meter, in the future it will not cut prices because their goal is to build the first new district Fugu mansion .

Chinext ends the requirement that IPO companies have been continuously profitable and also expanded the number of industries eligible to list, up from 9. 创业板IPO取消盈利持续增长要求

Haixin Steel detonation wave of defaults (海鑫引爆钢铁违约潮)

Steel industry has been the default risk of the steel trade extending to the upstream, namely raw iron ore and steel companies in the field. Latest developments is the new financial reporter informed sources from the industry, the largest private steel plant in Shanxi Haixin Iron and Steel Group Co., Ltd. (hereinafter referred to as Haixin Iron and Steel) funding strand breaks, deep debt crisis, the risk of exposure to $ 15 billion 20 billion yuan.

Informed sources told Caixin reporter, Minsheng Bank loan exposure Haixin Iron and Steel Department said the outside world is much larger than the current 3.0 billion. In this regard, Minsheng Bank President Hong Qi is not recognized. Hong Qi said that the current local government is actively involved in the matter, "(Haixin) far not reached (the debt crisis) time." Minsheng Bank to Finance Brand Management in the new official reply claimed that the current Haixin Iron and Steel Group Co., Ltd. in Minsheng Bank credit exposures 1.95 billion yuan, all of the Department of collateral loans. "I'm OK now and the relevant government departments and banks a consultation jointly resolve risks, to help companies weather the storm."

And a bonus ghost city for the future: Are China's 'ghost' cities building towards economic ruin?

More than 150 square kilometres of property floor space will be built and put on the market in the next three years, enough to house 3 million more people in a city with a population of just 4.3 million - prompting fears Guiyang will be home to China's next ghost city, alongside infamous examples in Inner Mongolia's Ordos and in Wenzhou.

The Credit Dominoes Are Falling Again; Northeast Faces Deflationary Collapse Without Bailout

"The profit model is an important reason for the large-scale collapse of credit guarantee firms, a 2% profit is not sufficient for taking on 100% of the risk."
(Source: Credit Guarantee Firms Go Down Like Dominoes)

The long simmering problem of credit guarantee companies is finally coming to a head in China. What is a credit guarantee firm and what do they do? Their profit model is above. They operate on the AIG business model of providing what is effectively credit insurance on risky loans. What they effectively allow is subprime lending to all manner of borrowers, including home buyers. Oh yes Virginia, there are subprime mortgages in China.

If you can think of any big credit bust stories in China in recent years, most have a credit guarantee at the heart of the story. In some cases they form a web of mutual guarantees, such as in Xiaoshan, Hangzhou. From April 2014: Rumored Mass Death of Companies in Xiaoshan District of Hangzhou If Banks Collect on Debts; Government Tells Banks to Sit Tight or Leave

..these companies are tied together because they have given each other loans in the past to bail people out, or they are tied together by mutual investments and projects. What was a hodgepodge of individual bankruptcies has turned into a systematic crisis in this small district because there is no one left to save them. The banks are concerned about risk and may call in loans, taking the stronger companies down with the weak. The government told the banks, if you pull the loans then you ought to leave town.

See also: Ye Tan's Commentary on Xiaoshan: Get Government Out of Credit Markets and China's Credit House of Cards.

Sometimes, credit guarantees are used for epic Ponzi finance. Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee

Shanghai has more than 80 guarantor companies and nearly 40% of them were opened by Zhouning, Fujian steel trading companies (aforementioned Xiao Jiaoshou is from Zhouning).

What these guys in Zhouning figured out is you take out some loans for steel trading, but then use the money to open a credit guarantee company. Then you guarantee the loans for your steel trading buddies, who divert a portion of their proceeds into credit guarantee firms to do the same. Pretty soon, the Chinese banking system has made a lot of loans that they think are good credits because they have a guarantee.

In truth, the borrower is effectively guaranteeing his own loan. If the credit goes bust, the guarantee is gone too. Like the AAA garbage sold during the housing bubble, once the fundamentals give way the whole house of cards tumbles. If a credit guarantor goes down, then all his guaranteed loans are in trouble and it kicks of the daisy chain of default that wipes out an entire local economy. Or in the case below, an entire province.

One of the reasons why steel is collapsing is because the government didn't press harder for reform. A big reason for that was credit guarantees and bad debts. From earlier this year: Steel Collapse

The reason for the government's failure to tame the steel industry became crystal clear in 2014, when credit guarantees became a major issue. As with other industries, mutual credit guarantees form a web of interlocking liability. If one steel mill is shuttered, it sets off a chain reaction that shutters several more. In March 2014, Haixin Steel ceased operations with ￥20 billion in debt owed to 33 different lenders. Disaster fell on other steel and energy companies that had guaranteed Haixin's debt. This daisy chain of mutual guarantees tied the government's hands, restricting their actions for fear of setting off more bankruptcies.

If ￥20 billion can wreak havoc on the industry, imagine the problem facing the government today. In addition to the ￥1.3 trillion in bank loans, much of it short term, the industry's top 80 firms also owe ￥1.7 trillion in short-term high interest loans. Firms are borrowing to repay old debt, for instance a Xinjian unit of Baosteel saw its short-term debt climb 13.3% last year, even as long-term debt fell 29%. This increases the risk of default should credit conditions tighten.

Other posts:
Beijing Residents Use Consumer Credit to Speculate on Baoding Real Estate; Yet Another Source of Bad Debt (if you don't believe there are subprime mortgages in China, read that)
Credit Guarantee Nightmare; How The Qingdao Port Scandal Goes Viral
Credit Guarantee Firms Go Down Like Dominoes
Credit Guarantee Firms Continue to Implode, Private Bonds Default
Wenzhou Tries to Restructure Credit Guarantee Firms; More Than ￥50 Billion in Bank Loans At Stake
Trust Disaster Unfolding In Sichuan
Textbook Credit Implosion Underway in Sichuan Province
Liquidity Evaporates As Credit Conditions Worsen
Xi‘an Credit Guarantee Firms Go Bust
SMEs Wonder Not How to Live, But How To Die As Borrowing Costs Spike

With that as background, on to the latest case. Back in April: Hebei Credit Collapse: State Owned Credit Guarantee on the Brink as AIG Business Model Falters

The largest loan guarantee company in the northern province of Hebei has been in trouble since investors discovered it did not have enough capital to back its guarantees.

At least 50 financial institutions – ranging from banks and trust companies to securities firms and peer-to-peer lending websites – are worried their investments are in trouble, several employees from those financial institutions said.

The employees said the company has guaranteed at least 50 billion yuan worth of loans. Starting in July, some borrowers have defaulted on their loans and investors have been unable to get repayment from the guarantee company, they said.

...An executive from a fund investment company said it would not have lent to some projects if it were not for the guarantee the state-owned enterprise (SOE) provided.

"These are projects that we normally would not do," he said, "but because they were guaranteed by the company, we took them on anyway."

..."We believe that an SOE will not really default," a manager from a trust company in Shanghai said. "But no one knows how much longer the suspension will last."

Today: China shadow banks appeal for government bailout

Eleven shadow banks have written an open letter to the top Communist party official in northern China’s Hebei province asking for a bailout that would enable the bankrupt credit guarantee company to continue to backstop loans to borrowers. If the guarantor cannot pay, it could spark defaults on at least 24 high-yielding wealth management products (WMPs).

Analysts worry that a series of bailouts in recent years has encouraged irresponsible lending by fuelling the perception the government will not tolerate default. The latest appeal for a bailout will again force officials to choose between ensuring short-term financial stability or imposing market discipline on investors, which should improve lending practices in the long term.

Hebei Financing Investment Guarantee Group has guaranteed Rmb50bn ($7.8bn) in loans from nearly 50 financial institutions, according to Caixin, a respected financial magazine. More than half of this total is from non-bank lenders, mainly trust companies, who lent to property developers and factories in overcapacity industries.

The Northeast was in recession in Q2 and the latest industrial production figures don't change the outlook as of July. Credit defaults are more common due to the economic slowdown in the rust belt, but there's nothing special about the finances of the northeast. This has been a problem all over China as the links above show. The web of connections would take years in court to untangle if this firm went bust, it could drag in companies across the province and set off more credit implosions in cities across Hebei.

I haven't even touched the issue of WMPs. Often, instead of borrowing from banks, SMEs and real estate developers unable to obtain bank credit borrowed from trust companies. These trust companies raise money from unsophisticated investors, offering high yields, then loaned money to borrowers at high rates, but considered the loans good because they have credit guarantees. Here's an example of how this Ponzi pyramid grew in recent years, from the the "Textbook Credit Implosion" link above:

Rent no doubt was high due to growth in investment management/ advisory firms. At end of December 2013, there were nearly 5,000 of these financial firms, an increase of roughly 4000 from June of the same year! Sichuan's provincial government counted 509 firms involved in credit guarantees at the end of 2013, with a ￥233.8 billion guarantee balance and 730,000 households served, making Sichuan province the second largest market in the country. Central bank data from the end of June 2014 counted 326 small lending companies in Sichuan, ninth in China, with ￥59.7 billion in loans, fourth in China.

41.4% of western Chinese SMEs need credit and 57.2% of those credit needs are met with private fundraising (shadow banking). Average interest rates are 19.1%, well above the 9.7% annual rate for bank credit. Since they have no credit guarantee or collateral, 72.1% of small businesses are forced to use private fundraising. In Chengdu, there are investment products on the market today offering 15% to 18% returns, well above the 7% offered by bank trusts and WMPs.

Are you ready for the punchline? One insider estimates that 80% of this private credit flowed into real estate. Thanks to the rapid growth of the real estate industry, some developers were (successfully) paying 100% annualized interest rates and even the common people were spoiled, with investors refusing to even look at wealth product yielding under 20%.

In Handan last year (in Hebei province), a credit guarantee bust froze the real estate market. See: Another Credit Guarantee Gone Bust, One Month After Backing A Trust and Handan Credit Bubble Affects Entire City Economy.

Bailouts are coming. Lots and lots of bailouts.

Steel Collapse

China's steel industry is moving towards a trough. Last year, Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee set the tone for a year with rising NPLs in the steel sector. Recently, charges of corruption have rocked the industry:

China Baosteel executive under investigation for corruption

A top executive of China's Baosteel Group, the parent of Baoshan Iron & Steel (600019.SS), is being investigated for "serious disciplinary violations", China's corruption watchdog said on Tuesday, as Beijing intensifies its war on deep-seated graft.

China's steel industry comes under the anti-corruption spotlight

A Deputy General Manager [Sun Wendong] at Wuhan Iron and Steel Co. has been detained on suspicion of accepting bribes, according to an announcement made by the listed firm to the Shanghai stock exchange yesterday evening.

...The steel industry has been one of the areas targeted with close to ten steel executives investigated since last year, according to a report in today's Beijing News.

Anti-corruption teams are stationed in the steel industry for two months, scheduled to finish at the end of April. Insiders were surprised at the two arrests because the men were widely considered low key, capable managers, with the WISCO executive pegged as a potential future CEO.

Corruption charges are the least of the industry's worries as rising debt levels indicate business conditions are worsening. An undercurrent of default is raging as short term debt hit recently hit ￥980 billion, or 74% of the industry's ￥1.33 trillion in bank loans.

Previous government efforts to rescue the industry have failed. Reorganizations were supposed to help, but local governments each have an incentive to fight for their local mills and the central government fears economic instability. One proposed restructuring that would merge WISCO and Liuzhou Steel is 10 years in the making. An "Action Plan" was put together in 2012 that would allow the market to play a decisive role in allocating resources, strengthen the position of companies in the industry and create a competitive environment.

The 2012 Action Plan wasn't only for steel. The government was to halt approval of iron, aluminum, cement, plate glass and other industrial projects. For steel, the government wanted to leave about 300 companies. This number confused the public, since the market was supposed to be playing a role. Why did the government delineate the number of desired firms? The number comes from a government study which found 300 firms is appropriate during "normal conditions." The 300 firms accounted for about 90% of China's steel production.

The reason for the government's failure to tame the steel industry became crystal clear in 2014, when credit guarantees became a major issue. As with other industries, mutual credit guarantees form a web of interlocking liability. If one steel mill is shuttered, it sets off a chain reaction that shutters several more. In March 2014, Haixin Steel ceased operations with ￥20 billion in debt owed to 33 different lenders. Disaster fell on other steel and energy companies that had guaranteed Haixin's debt. This daisy chain of mutual guarantees tied the government's hands, restricting their actions for fear of setting off more bankruptcies.

If ￥20 billion can wreak havoc on the industry, imagine the problem facing the government today. In addition to the ￥1.3 trillion in bank loans, much of it short term, the industry's top 80 firms also owe ￥1.7 trillion in short-term high interest loans. Firms are borrowing to repay old debt, for instance a Xinjian unit of Baosteel saw its short-term debt climb 13.3% last year, even as long-term debt fell 29%. This increases the risk of default should credit conditions tighten.

Amid this looming chaos, a new three-year action plan is being developed for steel, plus a new 5-year plan and long-term industrial policies. If the government failed when debt levels were much lower and the economy was growing much faster, what are the odds of success today?

EEO: 钢的“底”

Sinosteel in Debt Quagmire; Steel Prices Decline

Chinese media is buzzing about a possible bailout for Sinosteel as the firm joins a long list of steel makers that have shut or gone bankrupt due to mounting debts. According to the Chinese report, Sinosteel is overdue on a ￥690 million debt.

China trader Sinosteel says facing financial problems but no debt crisis

Chinese state metals trader Sinosteel Corp is not about to undergo a restructuring as a result of mounting debt, a company official said on Tuesday, denying domestic media reports.

China's biggest state-owned steel trader earlier told financial magazine Caixin that it was facing financial problems as a result of unpaid bills from customers, but it denied rumours that it is struggling under the weight of overdue loans amounting to 10 billion yuan ($1.63 billion).

The general rule with rumors is that they should be discounted until they are officially denied.

The Reuters article goes on to say a crackdown in lending following the Qingdao port scandal has hurt the industry, but steel trading actually collapsed more than a year earlier. The story this year was the exploding number of court cases. Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee. If the banks continued lending into 2014, then we can look forward to bigger losses and court cases stretching into 2016.

The outlook for steel is not good, and its worse for miners than have been optimistic about China's demand:
Chinese steel man says production won't reach billion tonnes predicted by big miners

The big miners have long predicted that China's steel industry will peak at around 1 billion tonnes per year of iron ore, but Mr Li said it was more likely to peak around 870 million tonnes.
"Over the next 10 years, according to our studies, China's steel production can be over 800 million tonnes for a long time, but it cannot go over 900 million tonnes," he said at the International Mining and Resource Conference in Melbourne on Monday.

From the Chinese article (Google translated below) we learn Sinsosteel's debt crisis began in June when it was unable to repay a bank loan. The loan isn't completely in default: Sinosteel has repaid part of the loan, but several hundred million remains unpaid. The cause of the problem is placed on the Shanxi Haixin Iron and Steel Group bankruptcy earlier this year, as well as Sinosteel's radical debt fueled expansion in 2011.

This post Second Generation Wealthy Meet Their Waterloo has a graphic showing the massive overproduction of steel in China, where profits sank from the equivalent value of an iPhone to that of a popsicle.

According to CRBC data, there is ￥690 million overdue. Sinosteel has ￥18.7 billion outstanding on ￥25 billion credit lines from eight major banks. The optimists point out this is a small overdue debt relative to total debt. Of course banks are now restricting and shrinking those lines of credit......

This news hasn't shaken the steel sector; shares of public companies are broadly higher today.

Finally, today China released price data from September 11 through 20. Steel prices were down roughly 2% from the prior 10 day period. Since the start of the year, rolled steel is down 16%, and since the first 10 days of August, it is down 7%. 流通领域重要生产资料市场价格变动情况（2014年9月11-20日）

中钢6.9亿贷款逾期引债务风波 国务院没出面干预

Steel Trade War Is Glimpse of Future: Great Political Changes Underway

EU must take tough stance in steel dispute with China - German economy minister

"What is really at stake in the EU is whether we have the courage to take an aggressive position against China," Gabriel said in the German Bundestag lower house of parliament, adding that he would be in favour of taking such a stance.

The U.S. is getting aggressive: U.S. Steel accuses China of stealing trade secrets

Pittsburgh-based U.S. Steel said regulators should remove "all unfairly traded Chinese steel products" from the U.S. market, claiming the Chinese firms illegally conspired to fix prices, stole trade secrets and circumvented trade duties by using false labels.

"We have said that we will use every tool available to fight for fair trade," U.S. Steel CEO Mario Longhi said in a statement.

An article in iFeng reads: China's Steel Overcapacity Words Do Not Match Actions, US-EU Furious
iFeng: 中国钢铁去产能“言行不一” 现在欧美怒了

Chinese Ministry of Commerce website shows that this complaint is for China Hebei Iron and Steel Group Corporation, Shanghai Baosteel Group Corporation and other Chinese steelmakers about 40 carbon steel and alloy steel product exports to the US. United Steelworkers of America expressed support for the US Steel action.

A big dispute between the US and EU is over China's market status. The EU wants to designate China as a market economy, while the U.S. opposes the move. Tariffs on steel are much harder to impose if China gains market economy status, which is why this battle comes at an inopportune time for China.

In addition, the EU will decide in December whether to grant China market economy status, and now the steel issue a "handle" by the United States and the European Union grabbed hold. Under the terms of "China's WTO accession protocol," after December 11, 2016, against China's anti-dumping "surrogate country" approach will lose multilateral legal basis, Members shall immediately stop using the "surrogate country" approach. This way, the Western countries an important opportunity to recognize China's market economy status.

If China successfully obtain this status, then think about Europe on Chinese goods if anti-dumping duties, it becomes increasingly difficult. Many EU member states and then worry if the grant China market economy status, with the lifting of the EU anti-dumping measures, the relevant European industry and employment will be subject to further shocks.

The Chinese response is laughable:

For China steel dumping, the Chinese side had explained that the Chinese government attaches great importance to overcapacity, has taken positive steps over the past three years reduced the more than 9,000 tons of steel production capacity, the future will again Yajian crude steel production capacity of 1 on the basis of to 1.5 million tons.

This is like U.S. government accounting, propose a big spending increase, then call it a cut when the increase is reduced. Steel production hit a record in March. There are no cuts in production because China's capacity utilization is so low, it could still increase production amid mill closings.

The iFeng article admits the Chinese actions haven't matched the leadership's words:

February 4, the State Council published "on the iron and steel industry to resolve the overcapacity views the development of a turnaround," he pointed out from the beginning of 2016, within 5 years reduce steel production capacity by 100 million to 150 million tons. Recently, according to media reports, accounting for about 27% of the total capacity of Hebei Iron and Steel announced plans to phase out 100 million tons of production capacity in the next five years. Jiangsu has put forward, by the end of 2018, 12.55 million tons of steel production capacity Yajian. Plus Guizhou, Liaoning and other provinces, the local and national goals over 100 million to 1.5 million tons. There insider said, on the one hand officials would like to take over the fight performance, on the other hand in order to win more central resettlement funds and preferential policies.

However, the truth is that many Chinese steel mills have resumed production. According to "21st Century Business Herald" message, shut down for five months Songjeong Tangshan Iron and Steel Plant has been re-ignited. In addition, the recent days Rail Group, Tangshan Port and other steel production fully restored, Shanxi Haixin also plans to resume production by the end of April early May. It's expected China's average daily steel output in April will be a record high. Earlier, Reuters quoted Macquarie analyst Ian Roper said last year China closed 50 million -60 million tons production capacity, and has now resumed production of more than 40 million tons.

As with other failed reform efforts, this looks like another case of the local governments ignoring central mandates:

In fact, steel prices are a lot of local economic "lifeline", when the performance evaluation of the performance of the "key", in addition also involves local employment stability. Therefore, many local governments unanimous choice is, even if it is "zombie companies", but also with local finance its "continued life."

Finally, U.S. steel tariffs are working, cutting Chinese imports in half in April.

Steel Industry Executive Summary: April 2016 (PDF)

To give you an idea about why this is all about China, here's monthly production through February. Chinese production spiked back to 70 million tons in March and as mentioned above, is expected to go higher in April.

The U.S. industry's steel report shows the U.S. doesn't have the biggest complaint with China. That would be Vietnam, Thailand, India, Pakistan, Turkey, Saudi Arabia and Italy.

In conclusion, the case for countervailing duties is clear. China is by far the largest steel producer and due to its own sclerotic economic policies, increased production by 15 percent since 2013. Now it says the world must share the burden of overproduction, but China can't even make it's own local governments shut down local production. Meanwhile, the rest of the world wants China to absorb all of its own self-inflicted losses. The political climate has changed and I would bet on Donald Trump winning the presidency at this moment, but even if Clinton wins, the U.S. will at least side with the steel makers on this narrow issue. Tariffs are having positive effects in the U.S. Everything is working in favor of a protectionist U.S. policy on steel, which will very likely be replicated across other industries with the implementation of a national economic policy under a President Trump. With a President Clinton, there is likely no change in the free trade orthodoxy and both TPP and TPIP will pass, despite what she says during the campaign. (One reason why I expect Trump will win is that voters will want the sure thing in November on trade.)

Trump has created the coalition I predicted in The Logic of Strategy: Yuan Devaluation and the Road to Trade War

The protectionists are ever so slowly gaining the upper hand thanks in part to negative social mood. 2008-2009 will probably mark the peak moment for Wall Street and the Treasury Department, even though there is as yet no sign of it in Washington. Changes can be seen in the form of issues such as immigration, which has turned the grassroots of the conservative movement against the Chamber of Commerce and large corporations (due to an attack initiated by the latter against the former). This has pushed the Overton window of acceptable debate among conservatives who can now take shots at big business. There is also the growing libertarian faction pulled together by Ron Paul that supports his son, Rand Paul, that consistently attacks the Federal Reserve and Wall Street. Put it together and it is not hard to envision an anti-Wall Street, pro-manufacturing political consensus emerging. This will cut across party lines, with manufacturing unions pulling in Democratic support if there are specific bills to vote on.

This is crystallized in Trump's foreign policy speech, when he said, "We will no longer surrender this country, or its people, to the false song of globalism."

Trade Conflict Inevitable

One way or another, China will see the terms of trade changed and it will not be in China's favor. The best way for China to strengthen its position without any negative diplomatic effects: slash overproduction. If China doesn't cut production, it will hold the weak hand because it will bear the entire brunt of a trade war.

As touched upon in The Logic of Strategy: Yuan Devaluation and the Road to Trade War, once trade is subordinated to national security, once free trade orthodoxy is removed and trade becomes negotiable, you will rapidly see a coalition of business, foreign policy, military and security interests which will emerge to support a new trade policy. Countries such as Vietnam will likely jump on board with a policy to slow China's economic growth, and thus its military spending and ability to project power into the South China Sea. If China understood even a hint of what may be coming, they would be rolling tanks into the steel mills.

The Bigger Political Shift

Very few people predicted the rise of Trump, but I laid it out back in 2014. (Immigration Issue Set to Explode in America; Prepare for Political Volatility) Once he rose, experts didn't think he could win. Now the same people think Trump won't win in November. I expect he will win an electoral college landslide because major changes are underway as negative social mood has finally found its political agenda.

I explained the political shift here: Political Revolution Comes to America Via Immigration Issue. Way back in 2013 I wrote: Rise of the New American Right Leaking Into Mainstream; What is Neoreaction? and this week, it finally made the NYTimes in The Reactionary Mind, the first in a series of articles by Ross Douthat.

Trump isn't connected to neoreaction (since it dislikes democracy and populism), but the forces that have pushed neoreaction to the fore are similar to the forces propelling Trump to the White House. This is a giant wave with many unrelated parts and it only makes sense if you are looking at the macro scale. The conservative movement that arose in response to the communist threat amid the Cold War, is dying. As in Europe, socialism was seen as an acceptable compromise if it meant stopping communism, but now that communism is gone and the old Clash of Civilizationsis back, the table is being reset. There's a lot going on: neoreactionaries are attacking the heart of modern Western ideology, nationalists have secured power in Hungary and Poland, with nationalist parties rising across Europe, identity politics is replacing ideological battles in the mainstream political debate, and there are focused attacks on institutions such as the current war within the GOP. While some of these groups are literally at odds with each other, they all share in the current socionomic zeitgeist. Until social mood bottoms and turns higher once more, these trends will remain in place. Should they secure meaningful victories, they may also reshape politics, culture and society for generations.

Steel Trade Lawsuits Explode; Banks' Unceasing Nightmare; Defendants Flee

The situation with steel company debt continues to deteriorate. Last year there were a total of 2500 lawsuits at the relevant court in Pudong, Shanghai; in the first quarter of 2013 there were 1051 lawsuits. Last year the cases amounted to ￥19 billion, this year they are already ￥11.4 billion, in other words the average case in 2013 was about ￥7.6 million, but this year it is up to ￥10.8 million, an increase of 40%. The situation is expected to continue worsening into next year, with concern that this is still the tip of the iceberg.

According to an insider at the court, this year's cases have some new characteristics. The first is the concentrated debt, such as the case of Xiao Jiashou, the Shanghai Steel Trading King, which involved seizing assets of ￥460 million. Second are larger and larger cases in general, with cases above ￥10 million in debt more frequent. Third, the service rate is down (service of process) because the defendants have fled.

Last year the assets in these cases were better, and people were willing to mediate. This year asset quality has deteriorated and so defendants don't care.

The case load is putting pressure on the court system in Pudong. The work load is heavy for each case: there's an average of 15 defendants. There's the lending contract, loan certificate, guarantee contract, mortgage contract, warehouse agreement, plus third parties involved in the steel trade. (And based on the evidence below, many of the guarantor firms themselves may be other steel trading firms also in default. This is the interconnected finance situation seen also in Xiaoshan and in fact all over China.) One case has 20 boxes of files. More cases come as parties file claims with credit insurance companies, who then come to the court seeking compensation.

In 2013, banks had lent about ￥200 billion to the steel trading industry. About ￥70 billion of it is in default, another big chunk of it is not due until next year, but is expected to default.

Many banks lent to dealers who have relationships with the steel mills. If the dealer can't sell the product, many mills agree to buy it back, thus the banks are going after the mills. This spreads the credit risk from the dealers right to the top of the steel industry. Already there are rumors of private steel mills going bankrupt......

There's yet more. A lot of steel trading firms did not use loans for steel trading. They used 10-20% of proceeds to make high interest loans, another big chunk was used to speculate in real estate and land. This diversion of loan proceeds is common, in fact these steel trading firms have become empty shells, simply a financing platform. One business is steel trading, the other is finance.

Shanghai has more than 80 guarantor companies and nearly 40% of them were opened by Zhouning, Fujian steel trading companies (aforementioned Xiao Jiaoshou is from Zhouning). Here's some background on how things were working before the bust:

At the height of the credit fest, a steel trader simply needed to present the banks with an ID card from Zhouning to get start-up capital of Rmb5 million ($815,000), according to MoneyWeek. Typically the bigger Zhouning businessmen would guarantee the activities of more junior entrepreneurs from their home county.

This interlocking web of financial commitments was risky, but banks were happy as long as they were generating annual interest payments of Rmb25 billion on the back of Rmb200 billion of outstanding loans to steel traders, according to Shanghai Banking Regulatory Bureau figures.

But lending standards became increasingly slack. As one market participant tells MoneyWeek, “Banking officials didn’t bother checking steel traders’ inventories, or conduct onsite checks for loans, side-stepping risk management mechanisms.”

Soon Zhouning’s steel barons were relying on increasing amounts of leverage to keep the financing flowing. One report suggested that a single tonne of steel had been used 30 times to secure loans from different banks.

Where was this money going? Much of it was hunting for quick returns in the property market or heading into high-return loans in the shadow banking industry.

2014 is the year the steel trade debt crisis could explode. This industry is not like others: loss rates are very high. If these debts hit the banks' balance sheets, it will push up their NPLs. So banks have been taking lots of measures to keep these NPLs from showing up (see Tricks For Hiding NPLs. According to listed banks' annual reports, in the first half of 2013, overdue debts increased ￥116.7 billion, but NPLs only increased ￥38.9 billion. In 2009, bad debts exceeded overdue loans by ￥0.9 billion, now overdue loans exceed bad debts by ￥210.3 billion. This is because banks have become less strict in their classification of bad debt.

Google translated article:
钢贸诉讼集中爆发 银行坏账噩梦不断

The bank is expected to dispose of the steel trade has come to an end category of bad debt continues to deteriorate, the steel trade loans holistic outbreak cases appear not previously.

China Securities Journal reporter learned from the Shanghai Pudong New District Court last year, the hospital accepted all year loan steel trade dispute 2500, while the first quarter of this year has reached 1,051. Last year, the steel trade involving Shanghai Pudong area banks 190 billion in the first quarter of this year, the steel trade-related loans reached 11.4 billion yuan. Steel trade loans continued to show a large-scale outbreak of cases the situation, and this situation probably will continue into next year.

Since the lawsuit joint-stock banks in Shanghai almost all concentrated in the Pudong New District Court, the above data has great representation. It is understood that the steel trade more litigation livelihood, CITIC, peace, Everbright, ICBC and other banks. The industry is worried that the above situation is probably just bad debts "tip of the iceberg."

Litigation insurance companies concentrated outbreak passive involvement

Pudong New District Court Chambers financial year are almost all human flutter in the trial of such cases in the steel trade.

Person in charge of the hospital, the steel trade cases appeared several new features this year. The first is the more obvious characteristics of concentrated outbreak - showing a case of a concentrated outbreak of the steel market, and last year there is no such. Like "Shanghai Steel Trade King," said the Shanghai Songjiang Steel City chairman Xiao Shou equity assets are seized 466 million yuan case, Xiao Shou own borrowing is not much, but he, as chairman of the city for the Steel City Steel numerous steel Trade provide a lot of security.

Second, is the subject of growing. Last year the amount of steel trade category of cases was 190 million in the first quarter of this year reached 11.4 billion yuan, many thousand million cases.

The third year, the rate of delivery of steel trade cases less. That is, the defendant "foot" is more serious.

"Last year, the steel trade cases involving assets seems a little better, there are people willing to mediate this year felt the guarantor has no ability to provide guarantees, so no matter altogether." The person in charge.

Steel trade categories of cases heard, the court has allowed the Pudong New Area felt the heavy pressure.

The trial of such cases particularly large workload. Basically, each case has about 15 defendants, which relates to the borrower, guarantor, mortgagor, steel trade enterprises, and some have storage company, mixed with a lot of legal relations. Set of materials for each defendant, the defendant also involves a loan contract, loan documents, to ensure that contracts, mortgage contracts, contract warehousing supervision, as well as steel trading business and tripartite agreements ......

"Multi-defendant cases, the addition of material A clerk told me that we send a copy of the receipt on the back more than 100 A case has 20 cartons court hearing child ...... financial loan contract dispute involving mostly steel trade, the bank is also a priority disposal of steel trade; bank too late, we have no time, this year's focus is steel trade "relevant person in charge of Pudong New District Court told the China Securities Journal reporter.

Moreover, the steel trade this year, some lawsuits "deformed." Between the steel trade financing, when signing the contract of sale, to the insurance companies of credit insurance, credit insurance, apply for debtors, but the subject is relatively large, then the steel trading business did not receive the goods on the grounds to claim compensation. After the insurance company for compensation, on to the court proceedings, requiring recovery.

The risk of misappropriation of funds or spread to frequent chain

It is understood that in 2013 the bank loans involving steel trade up to more than 2000 billion, in part due to approximately 700 million, of which less interest has occurred, to prosecute the more than 190 billion yuan; another part is not due , is a dynamic figure, certainly there next year.

A Shanghai investment company responsible person, the industry's most worried about is the credit risk spread to other industries from steel trade.

Steel trade loans have a very "deadly" product called "vendor Silver", almost every bank has. Simple generalization is the bank for a loan large steel dealers based on sales. If you can not sell the steel, the steel mills commitment to repurchase. If the lender can not recover for the dealers, can be traced to the large steel mills upstream.

"It makes it easy for dealers to spread the risk to the upstream steel coupled with overcapacity in the steel industry, there have been rumors of a private steel mills into bankruptcy. Then will be more severe." A Shanghai investment company official told China Securities Journal reporters.

Year of the Horse at the beginning of the Shanghai region, "Steel Trade King" Xiao Shou banks have been seized assets. Subsequently, gold type Heavy Industries Ltd. of Guangdong, Shandong Iron and Steel Co., Ltd. Bo Kim also led to a credit crisis is not small. Large-scale private enterprises in Shanxi Haixin Iron and Steel, Shanghai, China Metallurgical Steel Group Co., Ltd., have also caught in the debt crisis.

In addition to the steel industry, private lending, real estate and other areas of high-risk areas are also risk conduction.

"Steel trade bank loans rarely true for the steel trade, 10-20% of their loans to civil usury;. Remaining there are a large part of the investment in real estate, land speculation." A Shanghai investment company responsible Introduction.

According to the Shanghai steel trade associations related parties, such misappropriation of funds in the steel trade and industry, the phenomenon is widespread, steel trade enterprises has actually become a shell of the financing platform. Zhou Ning person claiming two business does best, is a steel market, and the other is financial.

Shanghai has more than 80 companies have secured nearly 40 percent of Zhou Ning steel trading business open. The company is mainly engaged in lending guarantees, warranties, steel, secured. The majority of these funds is to guarantee the company's bank credit funds misappropriated. And a large number of steel trading business bankruptcy, frequent events such as foot and almost let private credit system crash. "Like the case of Wenzhou have occurred." Shanghai a security company sources said.

Fujian Zhou Ning in the country who has created more than 150 steel market, steel trade enterprises operating nearly 20,000. Zhou Ning steel trading business in the name of the construction steel market to the enclosure, all of a sudden is a few acres. After two or three years the appreciation of land, but the steel trading unsustainable As expected, the steel market is a matter of course to commercial real estate. Zhou Ning people through the store, the land value, resale large fortunes. Moreover, Zhou Ning steel trade in steel market as collateral for loans from local banks. After taking the money to do short-term loans, so lending, to other places to build the steel market, so scrolling.

With the sharp reduction in infrastructure investment over the steel market will gradually expose triggered the crisis.

Breaches or continuation of growth in non-performing loans

In fact, Suzhou, Wuxi and other cities with many steel market also appeared massive steel trade bank bad debts.

Lian Ping, chief economist at Bank said earlier that 2014 will be a risk of large-scale outbreak of steel trade of the year. The case of steel trade loans are very different from other industries, the loss rate is very high, if all exposure to short-term, non-performing assets of commercial banks rose sharply, the listed banks unacceptable. Therefore, the bank has taken various measures reflected in the NPL ratio should be said that there is a certain degree of retention, in 2013 and did not fully exposed, the situation may eventually lost in 2014 basically exposed.

Report from the listed banks in 2013, the first half of overdue loans grew 116.7 billion yuan over the same period increased by only 38.9 billion yuan of bad loans, overdue loans and non-performing loans difference between -9 billion by 2009 to 210.3 billion yuan to expand Overdue loan growth significantly higher than the non-performing loans. This difference reflects a certain degree of extension and restructuring of commercial bank loans overdue more conservative, but in the past the more stringent overdue loans identified as non-performing loans has been a change of policy, but if the overdue loans and non-performing loans between the gap in the future continue expand, then gradually identified as overdue loans bad enormous pressure.

Moreover, the risk of non-performing loans in 2013 traditional exposure-prone areas still obvious. In addition to the "two high and one left," the industry to specific industries such as the steel trade and export-oriented enterprises in eastern coastal areas of non-performing loans on behalf of small and medium enterprises are also growing rapidly. With further changes in some sectors (such as shipping) operating environment in the upstream industry chain of large companies began to be affected.

Lian Ping believes that a stable macroeconomic growth target of about 7.5% in the background, bad banking loans inertial growth trend could continue into the second half of 2014, the balance of non-performing loans still have a certain level of the annual increase in the rate of increase in non-performing loans 0.1-0.2% in the non-performing loan rate may increase to 1.1% -1.2% level. Overall, the number of potential risks while the possibility of the outbreak of asset quality deterioration is small, but if the GDP growth rate of nearly 7 percent, while commercial banks can not introduce effective policies to control the potential risks, do not rule out non-performing loan ratio increased to 1.3- 1.5% of the possibilities