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China Steel Financing Probe Could Reach Singapore

An investigation into metals financing in a northeastern Chinese port city has cast a chill in Singapore, where a surge of business financing imports into China has bankers increasingly worried.

A Chinese company’s alleged use of metal as collateral to get loans from several international banks shows that commodity-backed loans are not as safe as bankers assumed.

More and more of these loans originate from Singapore as international banks move their China business out of Hong Kong, leading Chinese firms to set up shop in the tropical entrepot to tap offshore dollar liquidity.

Last week, Qingdao Port said police had opened an investigation into alumina and copper held at Dagang Port, one of several ports under its management. Traders rushed to move metal out of Qingdao.

Chen Jihong, founder of aluminium producer Dezheng Resources, was detained by Chinese authorities several weeks ago in connection with a different investigation in another province, people familiar with the matter in Qingdao said. His disappearance caused banks to check their exposure to his firm, and suspect that the same metal had been pledged multiple times by one or more of its subsidiaries.

The case highlights what bankers do not know about their clients in China.



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