348 creditor suits against Shanghai steel magnates in 28 days

348 creditor suits against Shanghai steel magnates in 28 days

Staff Reporter 

2014-02-25

The troubles of China’s steel industry have culminated in charges filed by creditor banks against some industry leaders, notably Xiao Jiashou and Zhou Huarui.

From Feb. 20 to March. 20, the amount of litigation involving steel traders to be heard in Shanghai courts totals 348 cases, almost half of the total litigation of 700 to be heard in the city’s courts during the period. Most of these suits are being filed by major creditor banks, including ICBC, China Minsheng Bank and the Bank of China.

According to the Guangzhou-based Money Week, creditor banks have listed a considerate amount of loans taken by steel traders as non-performing loans or bad loans.

An industry insider said that Xiao Jiashou, the chairperson of Shanghai Songjiang Steel Market Operation Management, has defaulted on huge banking loans, on top of debts of several hundreds of millions of yuan owed to the private sector, while Zhou Huarui, chairman of Shanghai Yixian Steel City Group, was implicated as a guarantor for non-performing loans taken out by his associates.

Banks rushed to extend loans, mostly unsecured, to steel traders under the government’s loose credit policy in 2009, a reversal of their previous reluctance to offer such loans due to the inability of traders to offer collateral. Some corrupt banking officials colluded with figures in the steel industry, using forged orders or mortgaged collateral to extend loans. “Banking officials didn’t bother to check the inventories of steel traders or conduct other on-site checks for such loans, sidestepping the banks’ risk-management mechanisms,” remarked an industry insider.

According to the Shanghai Banking Regulatory Bureau, outstanding banking loans for steel trading firms in Shanghai peaked at 200 billion yuan (US$32.7 billion), with interest rates reaching 15% per annum, leading to 25 billion yuan (US$4.1 billion) of annual interest burdens on these firms.

Problems began to surface in 2011 with the economic downturn, which caused stagnant sales of steel products and drove down steel prices, resulting in heavy losses for steel traders. Banks started to tighten credit for steel traders at the same time. Unable to access loans, steel traders then resorted to private lenders in China’s shadow banking system. Growing numbers of steel traders were unable to pay back banking loans, a situation compounded by the industry practice for steel traders to act as guarantors for each other.

With their confidence and patience exhausted, banks sued large numbers of indebted steel traders. In April 2013 alone, Shanghai courts saw 209 suits filed by creditor banks against steel traders and the cases numbered 302 in August 2013.