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10,000 Chinese steel traders defaulting on credit card debt

10,000 Chinese steel traders defaulting on credit card debt

Staff Reporter

2014-06-22

More than 10,000 owners of Chinese steel trade firms are behind on credit card payments with several billion yuan involved, and banks in Ningde in southeastern China’s Fujian province are giving discounts to help debtors pay back what they owe, Guangzhou’s Time Weekly reports.

After checking with Shanghai’s chamber of commerce, the previous preferential treatment from banks offering 20% discount in principal payments has been abolished, and instead the program is adopting installment payments and late fee waivers. Shanghai Pudong Development Bank and Bank of Shanghai are promoting similar schemes to handle delinquent payments.

Zhang Zhen (pseudonym), the owner of a steel trade firm in Fujian’s Zhouning county, said she hopes banks can give debtors longer to pay back their debts. But an unnamed banking executive said banks cannot afford to take such losses.

Zhang and her husband together have credit card debt of more than 1 million yuan (US$160,000).

Shanghai’s more than 20,000 steel trade companies are mostly located at the junction of the city’s Baoshan, Hongkou and Yangpu districts, the world’s biggest concentration of steel trade enterprises and an area which also houses one of Shanghai’s highest concentration of banks. The two formerly formed a very useful partnership but the steel industry went into a nose-dive in 2011, with steel prices plunging and sales stagnant.

A source at Zhouning’s chamber of commerce estimated about 10,000 businesspeople in the county are behind on credit card payments. Each entrepreneur on average had a credit card quota of about half a million yuan (US$80,000), the source said.

More than 100 owners of steel trade companies in Zhouning have been sought by the police or detained due to credit card repayment disputes.

As of the end of 2013, credit card delinquency (repayments more than six months late) totaled 25.19 billion yuan (US$4.05 billion), up more than 70% year on year.

The ratio of non-performing loans (NPL) of credit cards at nine banks reached 1.44% on average in 2013, up 0.16 percentage points from a year earlier, far exceeding the average 1% NPL ratio for commercial banks, according to their annual reports.

These newly increased NPLs were chiefly those created by Shanghai’s steel trade companies during the industry’s stagnant sales during 2011-2013, said Zhou Xiaohuang, former president of China CITIC Bank.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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