Gold transactions falsified to borrow from banks
June 30, 2014 Category Finance, Weekly
Chinese gold processing firms have since 2012 used falsified gold transactions to borrow CNY94.4 billion from banks, according to China’s National Audit Office (NAO). Coming on the heels of alleged metals financing fraud at Qingdao Port, this may prompt authorities to launch another crackdown on commodity financing. Spot checks on 25 gold processing companies such as jewelers, showed they made a combined profit of more than CNY900 million by using the bank loans to take advantage of the difference between onshore and offshore interest rates, as well the appreciation of the currency. Chinese firms could have locked up as much as 1,000 tons of gold in financing deals by the end of 2013, the World Gold Council (WGC) said in April, indicating a big slice of imports has been used to raise funds due to tight credit conditions, rather than to meet consumer demand. At current prices, that would be worth about USD42 billion. The NAO also said it found problems with coal, corn and cotton reserves. Traders warned that warehouse fraud could lead to the drying up of credit for all but large firms and state-owned enterprises (SOEs) which dominate commodities trading. Thousands of small firms will be faced with tougher bank requirements for financing, causing them to sell down stockpiles, squeezing demand for metals and other raw materials. According to sources, Standard Chartered Bank has suspended some commodity financing deals in Qingdao Port after authorities there launched a probe into a private trading firm, Decheng Mining, that is suspected of duplicating warehouse certificates to use metal stockpiles multiple times to raise financing. Goldman Sachs estimates that commodity-backed deals account for as much as USD160 billion, or about 30% of China’s short-term foreign-exchange borrowing.
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