China

In the latest sign of the mounting risks to China’s debt market, a bank for the first time ever reportedly disclosed the default on a loan by a local government financing vehicle, Fox Business News reported. Over the weekend, the 21st Century Business Herald, a Chinese-language newspaper, reported Qilu Bank in Shandong Province told investors in its 2013 annual report that the Urban Construction and Comprehensive Development Company of Licheng District, Jinan City (located on China’s east coast) defaulted on a bank loan, according to Nomura.

Distressed debt funds are raising cash to seek greater opportunities in China, where Standard & Poor’s says corporate borrowing topped the U.S. last year, Bloomberg News reported. Planned commitments to funds investing in Chinese and other Asian troubled assets are set to surpass $2 billion this year, up from $303 million in 2013, data from researcher Preqin Ltd. show. Morningside Group Holdings Ltd. in Hong Kong plans a $103 million vehicle, Preqin said. Guangzhou-based Shoreline Capital Management Ltd.

China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals, Bloomberg News reported. Twenty-five bullion processors in China, the biggest producer and consumer of gold, made a combined profit of more than 900 million yuan from the loans, according to a report on the National Audit Office’s website. Public security authorities are also probing alleged fraud at Qingdao Port, where copper and aluminum stockpiles may have been pledged multiple times as collateral for loans.

China has signalled it will resist calls for aggressive measures to prop up its flagging property market, even as house prices continue to drop, the Financial Times reported. People’s Daily, the Communist party’s main mouthpiece, said in a commentary on Monday that the property market was in a “normal adjustment period” and accused domestic developers, speculators and foreign banks of exaggerating the slowdown in order to put pressure on authorities to adopt heavy-handed stimulus policies.

Major Chinese banks want to manage their own bad debts, attracted by the outsize profits being earned by recovery firms, in a sign of confidence that investments in internal risk assessment teams are set to pay off, Reuters reported. If they are right, it may mark the end of a buyer's market for a distressed debt pile that has topped $100 billion (58.78 billion pounds), benefiting bank shareholders at the expense of asset-management companies such as China Cinda Asset Management Co.

As President Xi Jinping of China prepares to tackle what may be the biggest cases of official corruption in more than six decades of Communist Party rule, new evidence suggests that he has been pushing his own family to sell hundreds of millions of dollars in investments, reducing his own political vulnerability, the International New York Times reported. No investment stakes have been tied directly to Mr. Xi or his wife and daughter.

China’s home buyers are being offered no-money-down purchases in an echo of the subprime lending that triggered a U.S. economic meltdown and the global financial crisis, Bloomberg News reported. Deals skirting government requirements for minimum 30 percent down payments have emerged this year from Guangzhou and Shenzhen in the south to Beijing in the north as real-estate sales slump, according to state media and statements by government agencies and developers.

Large banks and trading firms are frantically trying to determine whether they have fallen victim to a suspected commodities fraud emanating from the giant Qingdao Port in northeast China, the International New York Times DealBook blog reported. Citigroup and several other large Western banks are concerned that their loans may lack the appropriate collateral, big stockpiles of copper and aluminum at the port. The banks have inspectors on the ground who are trying to assess whether enough of the metals are there.

A surge in business loans to the slowing mainland Chinese economy has prompted Hong Kong regulators to impose strict financial rules four years before they are required under new global standards, the International New York Times DealBook blog reported. The move is aimed at discouraging banks in Hong Kong from raising money by relying too heavily on short-term funds that can evaporate during periods of tumult. But big global banks have been resisting, over fears that the rules will cut into their profit by driving up loan costs.

China has taken a fresh step to boost flagging growth by cutting the amount of cash reserves some lenders must hold at the central bank in a bid to boost lending to small businesses and the rural economy, the Financial Times reported. The People’s Bank of China said it would reduce the “required reserve ratio” by 0.5 per cent for banks that mainly lend to small businesses and rural borrowers. In the first quarter of this year, China’s economy grew by an annual 7.4 per cent, down from 7.7 per cent expansion in the final three months of 2013.