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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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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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