| New York Times | - |
QINGDAO,
China - Is the metal stored in a Chinese warehouse really there? Has
the peanut oil shipment that a bank loaned money against been swapped
for worthless water?
QINGDAO,
China — Is the metal stored in a Chinese warehouse really there? Has
the peanut oil shipment that a bank loaned money against been swapped
for worthless water?
Basic
questions like these have begun to play on the minds of traders and
bankers doing business in China, the world’s largest importer of raw
materials, after an investigation began at Qingdao Port, a huge trading
hub in the northeast, into whether more than one license had been issued
for the same material.
The
duplication, which leaves buyers out of pocket when they claim what
they thought was theirs, may be a result of deliberate fraud by a
company using the same metal to raise multiple loans.
The
case of Qingdao has yet to play out and could be an isolated problem
involving one or a handful of companies, rather than an endemic problem
at ports.
But
for many Western traders watching the gargantuan growth of China’s
demand for commodities, credit is a touchy issue that brings back
memories of the 2008 financial crisis, making them especially jumpy when
credit-related problems arise.
On
Friday, Qingdao Port said it had been asked by China’s Public Security
Authority to help with an investigation relating to aluminum and copper
products.
It
did not say how much metal was involved, but said that it was an
“immaterial proportion” of its total annual throughput, and added that
none of its employees were under investigation.
Yet
in a country where oversight of commodity warehousing is generally
accepted as weaker than in developed financial centers, the case is
making people nervous.
A full-blown scare at Qingdao and beyond would not only affect the supply chain and price of commodities.
Raising
money using copper, iron ore or soybeans as collateral for relatively
cheap loans is big business in China, a ready source of credit for
investors who can then pour the funds into other ventures like property.
It is also increasingly important in China as banks become stricter in
extending credit.
Commodity
finance deals in China are worth as much as $160 billion, about 31
percent of the country’s total short-term foreign exchange loans,
Goldman Sachs said in March.
The
immediate fallout from the investigation could make such financing in
China — already under scrutiny by the authorities — even harder and
costlier.
Copper
prices on the London Metal Exchange hit one-month lows on Friday, amid
concerns that owners of physical metal in China who have been spooked by
events in Qingdao will look to sell, while others may shift their
stocks to the exchange’s warehouses elsewhere.
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