Thursday, September 15, 2011


...the churn goes on in the Paper Dragon.

From the FT:

More than a quarter of pre-tax profits at China’s Yangzijiang Shipping Holdings in the second quarter came from an unexpected source – not its core shipyard business, but from lending money to other companies.

In a similar vein, China Mobile has set up a finance arm to lend money, while PetroChina already has a number of financial vehicles in place.

They are part of a growing number of Chinese companies using excess cash to fund indirectly the country’s shadow banking system as Beijing’s monetary tightening makes it more difficult for small and medium-sized firms to access the formal banking sector.

At the same time it allows the companies – some estimates say 90 per cent of the shadow lenders are state-owned – to make healthier returns than they could by leaving the cash on deposit.

“Everyone does it; they just don’t tell you,” says Vincent Chan, equity strategist for Credit Suisse in Hong Kong. “The difference with Yangzijiang is that they do it in the listed entity, not at the group or parent level.”

China Economic Daily, a state-run newspaper, reported that 64 listed non-financial companies had issued loans this year as of the end of August. It said that they had lent a total of $16.9bn, up 38.2 per cent from last year, according to stock market filings.

Of these companies, 35 lent at rates higher than the standard bank rate, with the highest at a 24.5 per cent annualised rate. The report added that at least nine out of ten companies engaged in lending were state-owned, such as China Railway Group and the property arm of China’s food giant Cofco.

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